Minimum tax ‘monster’ growing Sen. Snowe seeks to end levy as more Mainers paying AMT

AUGUSTA – Estimates given the U.S. Senate’s Finance Committee indicate the number of Mainers hit with the alternative minimum tax will skyrocket this year to about 85,000 taxpayers unless Congress acts to limit its impact.

“This is just a serious issue that requires our full attention,” said Sen. Olympia Snowe. “That’s why we should never have passed the extension of the major tax cuts like capital gains and dividends … knowing the AMT would be a monster tax on middle America.”

Snowe, a member of the Senate Finance Committee, said that last year 12,987 Mainers were hit with the AMT, which was created in 1969 to ensure that all taxpayers, no matter how many deductions they had, would pay some federal income tax.

But unlike the income tax brackets that are adjusted every year for inflation, the AMT is not, and more Americans are finding the tax applies to them. Maine is hit particularly hard, according to a Congressional Budget Office analysis, because the state has high income taxes and property taxes, and while they are deductible under the regular income tax, they are not under the AMT.

Maine ranks among the top 10 for its average deduction on federal income taxes for state and local taxes, according to the CBO.

“Millions of Americans could see a significant increase in their income taxes next year if this is not fixed,” said 1st District Rep. Tom Allen. “If we can’t do a permanent fix of the alternative minimum tax this year, then we have to do a one- or two-year patch until we can.”

He said there has been considerable discussion in the Ways and Means Committee, the House panel that writes tax law, about ways to fix the problem. He said it is not clear whether the panel will opt for a short-term fix or a long-term solution, but he believes the panel will address the issue.

“This affects too many taxpayers across the country for nothing to be done this year,” he said.

Sen. Susan Collins expects there will be a temporary patch of the AMT this year, even though she supports a permanent repeal of the tax.

“I voted during consideration of the budget this year for an amendment that would have set aside funds to repeal the alternative minimum tax,” she said. “It’s a sneaky stealth tax. It is a backdoor tax that is applied to reduce the value of deductions, and I just don’t think that’s a good way to go.”

Collins said a better way to assure upper-income taxpayers pay more in taxes would be to set higher rates for them. She said all taxpayers should have the same access to deductions such as the mortgage interest deduction.

“We have got to have a permanent fix for this,” said 2nd District Rep. Michael Michaud. “It is a significant number to fix this, but we can’t keep just patching this.”

He said other members of the conservative “Blue Dog” Democratic caucus agree with him that a long-term solution, despite its huge cost, is the fiscally responsible approach.

The CBO estimates that the total repeal of the AMT would cost $800 billion over the next decade if the 2001 and 2003 tax cuts are not extended. If they are extended, the estimate increases to more than $1.5 trillion over 10 years.

The CBO study also indicates that the tax cuts, passed early in President Bush’s administration, have accelerated the number of middle-income taxpayers being hit with the AMT.

“This is what one advocate called a class tax that is becoming a mass tax,” Snowe said. “More and more Americans are being hit and we can’t just patch it every year.”

But, she said, with the significant price tag it will be difficult to get the political support to do away with the tax this session. Snowe said work in the Senate Finance Committee on the issue would resume this month after the holiday break.