AUGUSTA, Maine — When the alternative minimum tax first was passed in 1969, it was called the “millionaire’s tax” and was aimed at preventing the very rich from escaping federal income tax through the use of a host of tax loopholes.
But now the alternative minimum hits many in the middle income brackets, and without congressional action this year, it could hit Mainers with incomes as low as $30,000.
“It could certainly affect a minimum of 35,000 taxpayers here in Maine this year,” said Sen. Olympia Snowe, R-Maine. “It’s penalizing and captures more than 30 million people [nationally], and when it started out, it was affecting less than a thousand.”
Snowe, a member of the Senate Finance Committee, said Congress has never addressed a long-term solution to the alternative minimum tax, which has meant “fixes” nearly every year. The amount of income exempt from the tax was $46,700 for single filers in 2009 and for married couples filing joint returns, it was $70,950.
“We have to fix this. There is no question that we have to do it,” she said. But, she said, the battle is over how long a fix and how to pay for it.
“We have to have a permanent fix for the AMT [alternative minimum tax],” said 2nd District Rep. Mike Michaud, D-Maine. “I voted for President Obama’s 2010 budget which had a permanent fix.”
But, he acknowledged, Democratic House leadership has announced they do not plan to bring any of the budget bills to the floor for a vote, instead planning to use continuing resolutions to fund government. He said that given the extreme partisan atmosphere in Congress, he doubts a permanent fix as part of the budget will pass this fall but he believes there will be support to pass a one-year solution.
“We will have to find a temporary fix for the AMT,” Michaud said. “If we don’t, it will have a huge impact on taxpayers in Maine, particularly small-business owners.”
The president added $218 billion to the 10-year deficit projections in his budget to reflect the added interest the government would pay for the extra debt from his fix proposal. The alternative minimum tax is exempt from the pay-as-you-go budget rule, which requires budget cuts or new revenues to offset a budget item.
“I would prefer to pay for the fix permanently, but I don’t see that passing,” Michaud said.
Sen. Susan Collins, R-Maine, said Congress must fix the problem and she also would prefer to have a permanent repeal of the measure but will support a one-year fix because of its huge impact on middle income taxpayers.
“This needs to be fixed once and for all,” she said. “What we have been doing every year has been a one-year patch that just puts off until another year finding a solution to repealing this sneaky tax.”
Collins said the 1986 income tax reform legislation did not index the income levels of the alternative minimum tax while at the same time broadening the target of deductions to include items like the personal exemption, state and local taxes, and the standard deduction.
“It is a back-door tax that is not a straightforward way of generating revenues, and it is incredibly complex,” she said. “If we can’t reform it, it should be abolished.”
Rep. Chellie Pingree, D-Maine, said Congress will have to deal with the issue this fall, although she said it may not occur until after the elections. She said the battle is over how to fund the cost of the measure. Raising some other taxes to pay for part or all of it is a possibility, she said.
“I have already voted in favor of ending tax breaks for shipping jobs offshore, and I think we could do more to make sure the oil companies pay their fair share of taxes,” she said. “The AMT is not a fair tax at all.”
Pingree said Congress must pass a fix or explain to constituents why they are suddenly hit with a big increase in their tax bills when their incomes have stayed the same. She said it’s unfair to continue the tax and she believes most in Congress agree and will pass legislation to at least fix the issue for this year
The White House budget office calculates that over the next 10 years, the tax if unchanged would add $1.2 trillion in revenues, but the president does not include that revenue in his budget projections because he does not believe the Congress will allow the tax to continue as it is.