By Albert B. Crenshaw
Post
Sunday, May 29, 2005; F01

Did you pay it last month? I mean the alternative minimum tax.

If you did, or if you, your accountant or your computer had to work out an entire parallel tax return to figure out that you didn't have to, welcome to the middle or upper-middle class.

The AMT, as it is widely known, was created to catch up with the clever rich. Now, though, it has little impact on those folks and instead is whacking millions of fairly ordinary Americans. In fact, according to the Treasury Department, next year a typical family with two children will have to pay the AMT if its income exceeds $67,890. And by 2015, as many as 50 million taxpayers will have to pay it.

The AMT has, however, been very, very good to the Treasury. It is pulling in $18 billion in tax revenue this year, and by 2015 the AMT could be pouring $210 billion annually into the government's coffers. Washington insiders for some time now have been laughing that it would be cheaper for the government to repeal the regular income tax and keep the AMT.

This may be funny, but it's not a joke. The crossover point, when the AMT begins to produce more revenue than the regular tax, is now projected to be 2013.

The AMT is sort of a flat tax, though because of various phaseouts and other twists, it's less flat than it looks.

In broad terms, you figure it by taking your regular taxes, throwing out a bunch of deductions allowed on your regular return -- including personal exemptions and state and local taxes -- applying a very large standard deduction, and then figuring your tax at a rate of 26 or 28 percent. If that calculation produces a higher tax amount owed than was shown on your regular return, you pay the AMT.

The AMT has been around since the late 1960s, when it was discovered that -- gasp -- 155 Americans with incomes over $200,000 legally paid no income tax in 1966. They accomplished this by making extensive use of deductions and other breaks built into the law. So, rather than dealing with the breaks, Congress enacted the AMT.

It has been known for a decade or so that the AMT, which was not adjusted for inflation over the years, was creeping up on middle-income taxpayers. At the same time, because their regular tax rates are higher than the AMT's maximum 28 percent, many of the truly wealthy aren't hit by the AMT at all.

Nina Olson, the IRS National Taxpayer Advocate, says if there were one single change she could make in the tax laws, it would be to eliminate the AMT.

So why has nothing been done about it?

Last week a group of senators, led by Finance Committee Chairman Charles E. Grassley (R-Iowa) and senior Democrat Max Baucus (Mont.), introduced a bill to repeal the AMT.

Given the almost universal view that the AMT is bad, you might think their bill would be whooped through. But it won't be, for two primary reasons.

First, when people in Washington spot something that absolutely has to be done, their reaction is not to just do it, but to try to tack onto it other stuff that they'd like to see done but that faces opposition.

That's at work here. The Bush administration is pushing for a broad overhaul of the tax law and sees the AMT as the horse to pull whatever proposal it eventually comes up with.

"The AMT is the poster child for the need to reform the tax system," Deputy Assistant Treasury Secretary Robert J. Carroll told the Finance Committee last week.

Repeal the AMT by itself and a major source of middle-class rage against the current tax law fades away.

Second, as the rappers used to say, it all comes down to the money. Just as keeping the AMT raises a large amount of revenue at a time of high federal deficits, repealing it without making other changes blows yet another hole in an already leaky fiscal ship.

If the 2001 tax cuts expire as scheduled, AMT repeal today would cost the government $600 billion over 10 years. Assume the tax cuts are extended and the tab tops $800 billion. And, of course, since the AMT's take gets larger and larger as time passes, each year Congress waits means the 10-year revenue loss gets bigger.

"Given the large revenue impact of the AMT and the extent to which the AMT is closely related and intertwined with the regular income tax, we need to consider broad solutions that will involve changes in the regular income tax," Carroll said. "Thus, it is both inevitable and timely that the long-term solution to the AMT problem will be through broad reform of the income tax."

Giddyap, horsie. And in the meantime, taxpayers, watch where you step.

Medical costs for the "typical American family of four" with employer-sponsored health insurance reached an average of $12,214 this year, according to Milliman Inc., a big benefits consulting firm. That's up 9.1 percent over last year, but down from the 10.1 percent rises recorded in each of the previous two years. The family's share this year works out to a bit more than $2,000, with the employer paying the rest. Milliman noted that while the dollar amount the family spends continues to rise, its share of this year's increase declined in percentage terms. That's a switch from the past couple of years.

More than 17 million Americans spent about $1 billion on travel insurance last year, according to a survey by the US Travel Insurance Association. More than 80 percent of the policies were per-trip plans that included coverage for trip cancellation. Most likely to buy this coverage were people going abroad or on a cruise. The survey also found that more Americans are buying travel insurance online, with online travel insurance sales roughly doubling from 2002 to 2004.