Amt Patch For 2007

December 19, 2007

Another annual "patch" for AMT in 2007.

As a short-term remedy ("extender" or "patch"), while big tax change proposals are being debated (which include AMT), Congress once again acted to temporarily fix AMT for the current tax year (2007); in the same way they have patched it for years' past - with no new tax increases to pay for it.

One of the big problems with AMT is that by-law it's not indexed for inflation; whereas regular income tax rates and most phase-ins and phase-outs (for deductions and credits) are indexed for inflation. This causes AMT creep (over regular tax rates) each year.

AMT became a huge problem for 2007, because AMT creep was heading towards AMT destruction; right before a Presidential-election year.

Whereas, only 4-million Americans paid AMT in 2006, 20-million Americans were expected to be snagged by AMT in 2007.

AMT generally comes up as a nasty last-minute surprise to taxpayers and it tends to make them angry. Neither Democrats nor Republicans want angry voters in a Presidential-election year.

AMT (inflation) creep has been fixed with simple patches (for inflation adjustments) in most prior years; and it's also been done without much fanfare or a fight in Washington. Each year, this AMT patch is done earlier in the year, so the IRS has sufficient time to change tax forms in time for tax-filing season.

Too bad AMT caused great drama and tax-debate in 2007.
Perhaps, Democrats and Republicans wanted to showcase their differences in tax-values around the AMT annual tax fix.
With a Presidential-election year on the horizon, the new Democratic-controlled Congress took the opportunity to deploy their new "pay go" rules; to require new tax increases to pay for this annual AMT patch.

This was a fundamental change from prior years, where no new tax increases were required to pay for the AMT patch; which is really just a fix to put AMT on the same inflation index as regular tax rates.

Republican Congressman and President Bush were adamant about vetoing any new tax increase legislation in 2007. Hence we faced a `who blinks first game of chicken.'

The annual AMT patch-rite of passage was tied to the hip ("pay go rules") by the Democratic-controlled House pushing to repeal "carried interest" tax rules for private equity and hedge fund managers.

Democratic Senator Chuck Schumer of NY (which includes important Wall Street constituents) did not like the carried interest tax increase selectively applying to investment-companies only (and not big oil and real estate too).

In the end, the Senate did not stand-firm with the House and this greater tax-debate was deferred until 2008; leaving plenty of time to debate the issues before the Presidential election.

In the end, the AMT patch was passed in the same way it's always been passed; without any "pay go" tax increases.
But the Washington drama did taxpayers a great disservice.
By leaving the AMT patch open until December 19, 2007, millions of Americans could not finish their tax planning on time before the holiday break.

Congress can enjoy the holidays, but taxpayers and their accountants need to work through the holidays to deal with these (more important than ever) AMT changes. Again, that's because AMT may be fully repealed in 2008.

The IRS has also said that tax refunds may be held up by at least 6-weeks because it's too late to have AMT tax forms ready on time for tax-season.

Uncle Sam should change their name to Uncle Scrooge.