Duckworth Calls on Congress to Fix Escalating A.M.T. "Trap"

DUCKWORTH CALLS ON CONGRESS TO FIX ESCALATING A.M.T. "TRAP"
6TH DISTRICT RESIDENTS AMONG THOSE MOST AT RISK OF HIGHER TAXES

Speaking out on what she called a "simple matter of tax fairness and common-sense," Congressional candidate Tammy Duckworth today urged members of the U.S. House and Senate to tackle a problem that -- if left unresolved -- will dramatically increase the number of 6th District households who will find themselves owing more money to the IRS.

Duckworth called the alternative minimum tax -- or AMT-- a "ticking tax time bomb" that puts tens of thousands of taxpayers at risk of having to pay thousands of dollars in extra taxes. Communities in the 6th Congressional District are among the areas hardest hit.

Forecasters predict that as many as 15-20 million more taxpayers will be subject to the tax in 2006, a five-fold increase from 2005 levels. A recent study commissioned by the New York Times identified DuPage County as being home to one of the highest concentrations of such taxpayers. As a result, these households will be liable for thousands of dollars in additional taxes.

The AMT was developed in the 1970s as a mechanism to ensure that the wealthiest taxpayers were not able to avoid paying any income taxes. But largely because the AMT wasn't indexed to inflation, a growing number of moderate-income families have become subject to the AMT in recent years.

The portion of households earning between $75,000 and $100,000 paying the AMT will skyrocket from the current level of 1.1 percent to 29.8 percent in 2006. Meanwhile, nearly two-thirds of households earning between $100,000 to $200,000 will be hit.

According to U.S. Census figures, nearly 4 in 10 taxpayers in DuPage County fall into these categories—putting them at significantly higher risk of the AMT. Thousands of residents of Cook County communities located in the 6th District could also be newly-subject to the tax.

Without a legislative correction, the income thresholds of people impacted by the tax will decrease even more dramatically in the near future. Within four years, more than two-thirds of taxpayers making between $50,000 to $100,000 are likely to be affected, according to the Center for Budget and Policy Priorities.

"The AMT was originally designed to ensure that the wealthiest Americans pay their fair share," said Duckworth. "Instead, the AMT increasingly is taking a huge bite out of tens of thousands of middle-income families in this district, including many with two breadwinners," she said.

"Until now, two-income families had every right to expect that they would have a fair shot at affording college for their kids, health insurance for their families and higher gas and energy prices. Now, their shot at the American dream is becoming an impossible dream," she said.

The House and Senate have passed different versions of legislation to provide relief to taxpayers impacted by the AMT - each of which would cost approximately $30 billion.
Meanwhile, the House passed in December new tax breaks totaling approximately $95 billion—with more than half of the benefits targeted to the top 1 percent of all taxpayers.

"Congress could fix the AMT tomorrow if it weren't focused on giving more tax breaks to the wealthiest Americans-- who don't need the help and weren't even asking for it," she said.

Duckworth said that the AMT is just one example of how the U.S. Congress has been paying greater attention to assisting the wealthiest Americans, whose massive tax breaks during a time of war have resulted in huge federal deficits, than in addressing the increasing pressures on moderate-income families.

"The folks I am talking to in this district are working hard to raise their families and pay their bills," she said. "The last thing they need is thousands more in tax liabilities, due to the unintended consequences of a law this Congress has failed to address."

"Let's put partisanship aside and do what is urgently needed for moderate-income families," Duckworth said.

The AMT is a complex formula that runs parallel to the standard income tax. It tends to impact taxpayers with large deductions, such as significant real estate taxes. Taxpayers are required to first calculate taxes in the standard way, and also under the AMT format by adding back exemptions that they would otherwise take for dependents, and deductions for state income taxes, property taxes, medical expenses, stock options and others items. After deducting an exemption of between $29,000 and $58,000, a rate of between 26 to 28 percent is applied to the sum. The taxpayer then compares this calculation with his or her regular tax. If the regular tax is higher, no AMT is necessary; if it is lower, the taxpayer must make up the difference between the two. The difference is the amount of AMT a taxpayer owes.

The problem has grown worse recently, in part, as taxpayers have lost the ability to make certain itemized deductions and because the AMT is not indexed for inflation. Therefore, AMT liability increases each year, even if incomes are stagnant. Larger families are particularly at risk because the AMT does not allow personal exemptions upon which such households rely to reduce their regular income tax.

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