Politics

November 24, 2012

In fiscal standoff, more bad news for middle class

If it isn’t adjusted, a tax provision aimed at the wealthy could mean a sizable bill to far more households.

By JIM PUZZANGHERA Los Angeles Times

(Continued from page 1)

John Boehner
click image to enlarge

If Speaker of the House John Boehner, R-Ohio, and the rest of Congress don't reach an agreement on Bush-era tax cuts and government spending, millions of middle-class Americans will see their taxes increase.

AP File Photo

"It's insane to have two rival tax systems, side by side, that apply to millions of people," Kleinbard said. "And it's also absurd that every year we're required to participate in this roller coaster of 'Will Congress patch it or not?"'

A permanent fix would be costly because it would eliminate future revenue from the AMT under budget rules that assume the thresholds are not adjusted.

In his proposed fiscal 2013 budget, President Barack Obama asked Congress to permanently index the AMT thresholds to inflation. The plan, which was not approved by Congress, would have reduced tax revenues by $1.9 trillion over the next decade.

Over the years, Congress has made a series of temporary fixes that are less costly to long-term budget projections. Still, a two-year patch proposed in the Senate would cost the government $132.2 billion in lost revenue.

An additional complication is that if Congress doesn't act by Dec. 31, the AMT thresholds would be in place for people filing their 2012 income taxes next year. Congress could still fix the tax retroactively, but the uncertainty would create havoc for filers and the IRS, Miller warned lawmakers.

The IRS is assuming a fix will come, he said. If it doesn't, the agency would have to rework its computer systems. The "magnitude and complexity of the changes" could prevent many taxpayers from filing returns until the end of March or maybe later, he said.

Kleinbard said some taxpayers would delay filing their returns, while others would have to guess whether Congress would make a retroactive change. Guessing the wrong way could lead to an overdue tax bill and potential penalties or paying too much to the government on their returns, he said.

 

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