MIDDLE CLASS BURDEN GETS HEAVIER

Remember the scene in the film Dirty Dancing when the med student/waiter Robbie hands Baby a copy of Ayn Rand's The Fontainhead and says, "Some people count. Others don't"? That seems to be the guiding principle of the Bush administration and Republican Congress. Unless Congress takes action to extend the Alternative Minimum Tax "patch," millions of American families with children will find they owe a lot more in taxes next year.

The thing is, we can't afford to extend both the patch and the lowered rate on investment income. Which do you think the Rethugs will choose?

The investment tax savings in 2006 will be heavily concentrated on about 234,000 households, generally headed by someone 50 or older, with an average income of $2.6 million, more than most Americans earn in a lifetime. By comparison, most of the increase in the alternative tax is being paid by about 12 million families with children.
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The alternative tax was originally adopted in 1969 to ensure that people who earned the equivalent of more than $1 million in today's dollars did not live tax free. It has not been fully adjusted for inflation and was not integrated into the Bush tax cuts. In addition, Congress in 1986 made basic changes in what kind of deductions are counted in determining whether one has to pay the alternative levy, causing it to become a tax on the middle class.

In the beginning it took away exotic breaks to high-income taxpayers who paid little or no tax. Now it denies people exemptions for themselves and their children and deductions for state income taxes and local property taxes.

Just one-tenth of 1 percent of the increased alternative tax is being paid this year by those making $1 million or more, the Tax Policy Center estimates, even though this is the only group affected by the original version of the levy.

Tags: Alternative Minimum Tax patch, investment income