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U.S. Rep. Richard Neal: Adjusting Alternative Minimum Tax for Inflation Good News for Middle Class

January 16, 2013
In The News

U.S. Rep. Richard E. Neal has been talking about the problems with the alternative minimum tax not being indexed to inflation since the late 1990s, but it took the “fiscal cliff” to put the issue to rest with a permanent patch. 

“I think it was one of the successful parts of the agreement reached to avoid the fiscal cliff,” Neal said this week on a visit back to his district during a Congressional break. “At least it will end it. This is what we should have done back in 2001.” 

Neal, D-Springfield, is a member of the powerful Ways and Means Committee and the Ranking Member of the Subcommittee on Select Revenue Measures, one of the major tax writing bodies in the Congress.

The "minimum tax" was first enacted in 1969 as a way to ensure that a wealthy taxpayer didn’t use a large number of tax deductions to pay no taxes. 

“I researched it one time. It passed with only two dissenting votes, in the House,” Neal said. 

The present alternative minimum tax was enacted in 1982, and significant changes were enacted in the early 1990s. But it didn’t have an escalator clause to keep up with inflation. The alternative minimum tax also wasn’t adjusted for the Bush tax cuts of the 2000s, Neal said. Both of those factors have led to a skyrocketing number of households forced to pay the AMT.

If the New Year’s fiscal cliff deal hadn’t been passed, the alternative minimum would have meant higher tax rates for a married couple earning $56,000 a year with three kids taking the standard deduction. 

The average tax increase for those households would have been $3,700 for 2012, according to the Tax Policy Center, a nonpartisan think tank. 

Under the new deal, a married couple earning from $250,00 to $500,000 a year has a 50/50 chance of paying the higher rate. A married couple with two children earning $61,000 would no longer have to worry about the alternative minimum tax.

Also last week, the Internal Revenue Service announced that most tax payers should be able to file by Jan. 30. E-filing was to have begun Jan. 22. But the IRS has to adjust all its systems to mesh with changes in the tax code enacted in the fiscal cliff deal. 

The IRS will not process paper tax returns before the anticipated Jan. 30 opening date. There is no advantage to filing on paper before the opening date, and taxpayers will receive their tax refunds much faster by using e-file with direct deposit.


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