In the District and Maryland, where about 6 percent of taxpayers have become accustomed to paying the AMT, the figure would jump to 41 percent in D.C. and 38 percent in Maryland, according to official estimates. In Virginia, where 4 percent of taxpayers have routinely paid the AMT, the figure would increase to 28 percent.
Residents in other high-cost areas would also get socked. In New Jersey, for instance, where people are still digging out from Hurricane Sandy, taxpayers would face a fresh burst of bad news when they break out the TurboTax early next year. More than half of all Garden State households would owe unexpectedly large tax bills, the highest percentage in the country.
Nationwide, nearly one in five taxpayers is in line to pay the AMT. And while the levy is causing bipartisan nightmares, urban states — which tend to lean Democratic — are by far the most vulnerable.
That poses a challenge for Democrats planning to use the fiscal cliff as leverage to force Republicans to raise taxes on the wealthy to help reduce the federal budget deficit. President Obama has threatened to veto legislation that extends the Bush tax cuts for the wealthiest 3 percent of households, a top GOP priority.
If Obama wins reelection Tuesday and Republicans refuse to give in, Democrats say they are prepared to sail over the cliff and let the Bush tax cuts expire for everyone for the 2013 tax year. That would put them in position to press legislation in January to restore the Bush tax cuts — probably in a different form — for taxpayers earning less than $250,000 a year.
But the AMT could throw a wrench into those plans, because there is no easy way to deal with the levy once the cliff is breached.
For the moment, party leaders are blaming each other for not addressing the problem. To Republicans, the AMT is another reason to “extend all the expiring tax policy so we can overhaul the tax code to create jobs, spur economic growth and get rid of the AMT once and for all,” said Antonia Ferrier, spokeswoman for Sen. Orrin G. Hatch (Utah), the senior Republican on the Senate Finance Committee.
Democrats, meanwhile, accuse Republicans of holding AMT payers hostage in the pursuit of tax advantages for millionaires. “The fact that Republicans are willing to risk not doing an AMT patch — which has always been bipartisan and relatively noncontroversial — shows to what extreme they’re willing to go to protect the wealthy few,” said Sen. Charles E. Schumer (D-N.Y.).
According to estimates by the Tax Policy Center, more than half of all married couples will owe an additional tax of around $4,000 unless Congress acts. And more than a third of families with children will fall subject to the AMT, with parents of three or more children facing an extra tax of $4,700.
Among married couples with at least two children and adjusted gross income between $75,000 and $100,000, the center estimates that 84 percent will face a significantly higher tax bill this year because of the AMT.
There is also the possibility that some people could face penalties for failing to withhold a sufficient amount throughout the year to cover a tax they did not know they would owe, said Leonard Burman, a tax expert at Syracuse University.
“But politically, it’s inconceivable that Congress would let that happen,” Burman said. “They’re all playing this dangerous game of chicken.”
Loading...
Comments