AMT

Many people have never heard of the AMT - Alternative Minimum Tax. It was enacted as part of the US tax code in 1969 to force certain "high income" individuals to pay a certain minimum tax. Essentially the government felt that people were becoming too efficient at finding deductions. If, after you've figured the tax that you owe, if it's not enough, and your income is sufficiently high, you have to recalculate your tax liability under a different schedule where a lot of deductions no longer apply. In 1969, only 159 families had to pay the AMT, while it is estimated that as many as 20% of families will have to pay the AMT by 2010. This is happening because 1) Americans are much more wealthy than they were in 1969 and the AMT threshold has not been adjusted for inflation, and 2) Property values have escalated recently leading to property taxes as well as state and local taxes becoming a larger part of a person's tax liability. State, local and property taxes are not deductible under the AMT, so in essence families living in high tax states are penalized by the AMT. Interestingly, Bush's tax cuts exasperated the effects of the AMT.

In any event, politicians want to amend the AMT, but are unsure how to do it. It currently pulls in about $65 billion in revenue a year. Republicans have introduced a bill in Congress that eliminates the AMT and replaces the money with, and I'm not making this up, a tax on downloads of music on iTunes. This has got to be the dumbest idea I've ever heard of, ranking right up there with the Early Learning and Care Campaign in Seattle a few years ago, which sought a 10 cent tax on every latte sold in Seattle. (Although that tax was even more of a parody because it really was "for the children.")

Even if you hate the AMT, replacing it with a tax on a single product is a really stupid idea. I'm still waiting for politicians to propose some sensible tax reform, and it seems that I'll have to keep waiting.