Thesweeps away many prized deductions, but still retains perhaps the most despised levy of all: the alternative minimum tax for individuals, which forces them to pay more to Washington.
At the very least, lawmakers have softened the AMT to a degree. Thelets some taxpayers who've been in its clutches escape in the 2018 tax year, when the measure takes effect.
The House passed the tax overhaul on Tuesday afternoon; despite a procedural hitch that could require a , the measure is expected to pass. The early Wednesday in a party-line vote.
The number of Americans paying the shadow tax, as it's known, should drop for next year because the GOP majority in Congress, which is driving the tax bill, has increased the amount of the AMT tab that people can exempt.
Some 4.4 million tax filers, about 3 percent of the total, paid the AMT in 2015 (the last year for which full data is available). Due to the AMT, they ponied up an extra $7,000 on average, according to Internal Revenue Service figures.
Congress enacted the AMT in 1969 amid widespread outrage that many wealthy people paid little or nothing to Washington thanks to clever use of loopholes. But because income thresholds for being subject to the tax weren't indexed to inflation (until 2012, which didn't make up for the decades of lost ground), many middle-class people got sucked into paying it.
Under the AMT, the standard deduction and numerous itemized deductions, like for state income taxes, are disallowed. Middle-class people who live in high-tax states or who have dependents are the most susceptible to it. Taxpayers or their accountants must fill out a separate section of a tax return to compute whether they are subject to the AMT. If their liability under the AMT is higher than with the conventional tax system, they must cough up the alternative amount to the IRS.
Although deeply unpopular both with the public and on Capitol Hill, the AMT nevertheless provides Republican lawmakers with needed revenue to prevent the estimated $1.5 trillion cost of the tax bill from escalating further. The congressional Joint Committee on Taxation has estimated that the AMT will generate $133 billion over 10 years, almost 9 percent of the entire tax bill's cost.
The House-passed version of the bill repealed the AMT for both individuals and corporations. The compromise that emerged did away with only the corporate AMT.
"It would be nice if we could eliminate the AMT," Senator Mike Rounds, R-South Dakota, told reporters as House-Senate conferees met to forge their compromise. "However, I'd like to see what the pay-for would be," meaning how much revenue the government would forgo.
The partial fix that emerged for the alternative tax is more generous with the exemptions -- the amount you can subtract from your AMT liability -- and also raises the points where the exemptions are trimmed, called phase-outs. Under the old law, you can exempt $54,300 as a single filer and $84,500 as a married couple filing jointly. The new bill increases those exemptions by almost a third, to $70,300 and $109,400.
The bill also ups the phase-outs a lot: The income levels above which a chunk of your exemption gets reduced, say $0.25 for every $1 above those thresholds. The old phase-out points were $120,700 for singles and $160,900 for couples. The new levels will be far higher, $500,000 and $1 million.
Trouble is, all these helpful tweaks expire in 10 years. Will Congress then have the ability -- or the gumption -- to renew then? Meanwhile, new corporate tax breaks are permanent. In the meantime, figuring out one's AMT liability remains just as complicated as ever.
"These changes will temporarily reduce AMT liability relative to current law," wrote Erica York, an analyst with the Tax Foundation research group, "but still retain the complexity."
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