Alternative Minimum Tax

When Congress returns to work, among its priorities should be to deliver tax relief to millions of middle-class families who were caught by a "stealth" tax as of Jan. 1. It's called the "alternative minimum tax. " The AMT was created in 1969 to make sure that wealthy taxpayers paid their fair share and didn't abuse loopholes. But the original law made no allowance for inflation, and over the years more and more families with rising incomes have been snared by this tax. Taxpayers who fall unhappily into this category typically end up paying more in taxes.

Congress yesterday approved a plan that will spare millions of middle-class taxpayers from paying higher taxes in the coming months. The White House said President Bush would sign the bill. The tax reprieve postpones for one year only the alternative minimum tax, a parallel tax system enacted in 1969 to keep very wealthy investors from using deductions and tax shelters to avoid paying income tax altogether. The alternative tax has ensnared a growing number of middle-class Americans in recent years because the 1969 law was not indexed to inflation.

The House of Representatives voted yesterday to delay a scheduled tax increase that would affect 19 million taxpayers next year and may still have an effect on 30 million Americans a year by 2010. House members voted, 414-4, to extend by one year the current income-exemption levels for the alternative minimum tax. The Senate already had approved the extension, though as part of a broader tax-cut package rather than as stand-alone legislation. If the House and Senate pass identical bills containing these terms, as is likely, President Bush is expected to sign it into law. The tax affects few families with incomes below $50,000, but increasing numbers at every income level above that, up to $1 million.

You know tax complexity is getting out of control now that the "short" form is double the length of the old "long" form used in 1945. And that the 85 pages of instructions for the short form now exceed the 84 pages needed to explain the long form used just seven years ago. If you think your taxes are confusing now, how would you feel about preparing two federal income tax returns instead of one to calculate your tax? There's an excellent chance you'll be doing that by the end of the decade.

Rare and valuable paintings, sculptures and other works of art were donated to the Philadelphia Museum of Art last year, thanks perhaps to a change in the 1993 tax law affecting charitable contributions. In December alone, a painting by Ralph Earl entered the museum's collection, the first by the 18th-century American artist, along with an ornate, early-Victorian marble-top table and a rare 17th-century iron chest from India. The three works of art, all year-end gifts from individuals, collectively are valued at more than $100,000.

Nobody in the world of charitable giving knows precisely what the effects of new tax-reform laws will be for cultural institutions, universities and other nonprofit organizations. But a lot of people are worried. "Tax reform? You mean tax devastation," says Edward Able, executive director of the American Association of Museums. Since the Tax Reform Act of 1986 became law on Jan. 1, workshops, lectures and conferences have been scheduled by tax lawyers and fund-raising experts to decipher the meaning of the new laws and figure out whether tax reform translates into fewer dollars for nonprofit organizations.

AT LEAST three areas of the Internal Revenue Service tax code are unfair: Taxing of up to 85 percent of your Social Security benefits as ordinary income. We pay into Social Security, tax calculations never adjusted for inflation. This is one method of saving Social Security, because for every dollar paid out in benefits, the government may receive a portion back in income tax. Taxing of every dollar of unemployment compensation, which is only a small cushion when you're out of work and without company benefits.

Fully 67 percent of the tax-break benefits the Senate will begin debating today would go to the richest 20 percent of American families, those making above $81,967 a year, according to the Treasury Department. The poorest 60 percent of U.S. families - those earning below $49,862 - would reap only 12 percent of the tax breaks, according to a Treasury analysis published yesterday. The richest 10 percent of U.S. families, those earning above $115,239, would collect 45 percent of the Senate bill's benefits.

WHEN Dr. Frankenstein orders his servant to bring him a human brain, Igor drops the "normal" brain and brings a "criminal" brain to be reawakened in the surgically reconstructed monster. Christine Flowers in her April 22 op-ed on the "ban the box" legislation is probably right that there are professions that need to be protected from felony criminals. (We need not transplant more "criminal brains" into the banking industry than have naturally accumulated there.) But we shouldn't equate the excesses of the teenage brain with those of the hardened criminal - something that "10 to 20 with time off for good behavior" tends to blur by the time a capricious teenage foolishness plays itself out. I'm not sure that I agree either with Council or Flowers.

House GOP to ask to cut top tax rate WASHINGTON - House Republicans will call for cutting the top federal income-tax rate to 25 percent from the current 35 percent as part of their budget proposal for 2013. The plan by House Budget Committee Chairman Paul Ryan (R., Wis.) would consolidate the number of individual income-tax brackets from six to two, with the lower rate set at 10 percent. It would reduce the top corporate tax rate from 35 percent to 25 percent, while eliminating the alternative minimum tax intended to make sure that individuals pay at least some tax, according to documents provided by Ryan's office.

Here we go again. At the beginning of his presidency, Barack Obama argued that the country's spiraling debt was largely the result of exploding health-care costs. That was true. He then said the cure for these exploding costs would be his health-care reform. That was not true. It was obvious at the time that it could never be true. If government gives health insurance to 33 million uninsured, that costs. Costs a lot. There's no free lunch. Now we know. The Congressional Budget Office's latest estimate is that Obamacare will add $1.76 trillion in federal expenditures through 2022.

House GOP to ask to cut top tax rate WASHINGTON - House Republicans will call for cutting the top federal income-tax rate to 25 percent from the current 35 percent as part of their budget proposal for 2013. The plan by House Budget Committee Chairman Paul Ryan (R., Wis.) would consolidate the number of individual income-tax brackets from six to two, with the lower rate set at 10 percent. It would reduce the top corporate tax rate from 35 percent to 25 percent, while eliminating the alternative minimum tax intended to make sure that individuals pay at least some tax, according to documents provided by Ryan's office.

Give your tax return your full attention. It might be one of your last chances to partake in about $450 billion in tax breaks set to disappear at the end of this year. With the federal government scrounging for money and desperate to relieve a mounting deficit, lawmakers are circling some favorite tax breaks like vultures. During the last couple of years, they have tried to spur an anemic economy by putting a little more of your income back into your pocket instead of routing it to taxes.

Once upon a time, small ball was not Barack Obama's game. Last week, it was the essence of his State of the Union address. The visionary of 2008 - purveyor of hope and change, healer of the Earth, tamer of rising seas - offered an hour of little things: tax-code tweaks to encourage this or that (manufacturing being the flavor of the day), little watchdog agencies to round up Wall Street miscreants and Chinese DVD pirates, and even a presidential demand "that all students stay in high school until they graduate or turn 18. " Under penalty of what?

Rich still get breaks A letter writer asked why the alternative minimum tax doesn't require the rich to pay their fair share of income taxes ("Rich do pay fair share," Tuesday). Rich people's income consists mostly of capital gains and dividends, which are taxed at a maximum rate of 15 percent, much lower than the rates paid by most middle-class working people. As originally enacted in 1969, the AMT covered capital gains, but it no longer does. This was not an oversight; the purpose of the Republican tax program was to drastically reduce taxes on the rich.

WHEN Dr. Frankenstein orders his servant to bring him a human brain, Igor drops the "normal" brain and brings a "criminal" brain to be reawakened in the surgically reconstructed monster. Christine Flowers in her April 22 op-ed on the "ban the box" legislation is probably right that there are professions that need to be protected from felony criminals. (We need not transplant more "criminal brains" into the banking industry than have naturally accumulated there.) But we shouldn't equate the excesses of the teenage brain with those of the hardened criminal - something that "10 to 20 with time off for good behavior" tends to blur by the time a capricious teenage foolishness plays itself out. I'm not sure that I agree either with Council or Flowers.

Get used to hearing the term road map in 2011. Not the Mideast version, with two opposing sides and no room for compromise. This is a Washington road map with ... OK, bad example. The D.C. road map comes courtesy of Rep. Paul Ryan of Wisconsin, one of the GOP's best and brightest in matters of fiscal discipline and pro-growth economic policies. With his comprehensive Road Map for America's Future, Ryan aims to eliminate the short-term deficits and pay off long-term debts, make entitlements and health care both affordable and sustainable, and promote taxes and budgets that encourage economic expansion.

LAST WEEK, the prevailing narrative was that President Obama had emerged from the back room with his pockets turned out, nursing a fat lip. Everybody was saying it. Orthodox liberals accused him of selling their birthright for a bowl of lentils. Smug Republicans were congratulating each other on how they chumped him in the schoolyard. Even those of us who felt he was going to have to make a deal on the tax cuts eventually took him to task for doing it sooner rather than later, as if delaying the deal would preserve our principles.

Oh, sure, you've posted all your deductions for the year. You used the latest tax software. You filed your local, state, and federal returns. You consulted C.P.A.s, M.B.A.s, Ph.D.s, and LMNOPs to make sure you took advantage of every line of the 1040, Schedules A through Z, and AA through ZZ. Gave to charities. Gave to friends and relatives up to the taxable limit. Figured out the alternative minimum tax and the alternative maximum tax to boot. You hit the send button with the expectation of an instantaneous refund.

The tax man comes around, even in the worst of economic times. So it's time to review year-end tax tips. We've got a rundown of IRS changes from last year, and friendly advice for avoiding audits. 2008 changes. Every year brings headaches in figuring out what rules have changed. This Kiplinger page notes a lot of them, and they could be good news: "For starters, tax brackets, personal exemptions and standard deductions have been adjusted for inflation. " Also, "First-time home buyers get extra help from Uncle Sam. " Avoid audits.