Dire new Tax news...

Discussion in 'Gen 2 Prius Main Forum' started by moomin, Mar 17, 2006.

  1. moomin

    moomin New Member

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    More AMT madness... this just keeps getting worse. This Forbes article is two days old.

    http://www.forbes.com/business/2006/03/14/toyota-honda-hybrid-cz_ae_0315beltway.html

    ...Wait, it gets worse. You figure your regular tax, then your AMT and pay whichever is higher. Say your regular tax is $500 higher than your AMT. That means even if you don't otherwise owe AMT, you can use only $500 of what might have been a $2,500 hybrid credit. And here's the real kicker: Congress has yet to extend certain temporary AMT relief that expired at the end of 2005. If it doesn't extend that relief, then 26 million taxpayers--including almost everyone who can afford a new car--will pay AMT and there will be almost no one left who can actually benefit from a hybrid break. (The exception: Folks earning really big bucks--say $1 million or more--don't usually pay AMT. So a Hollywood star who already owns a Porsche and a Hummer, can get a credit for adding a Prius to his status stable.)...

    and

    ...The only chance they <most of us -ed.> have to get the full hybrid credit is if Congress passes a new fix specifically allowing it...
     
  2. ghostofjk

    ghostofjk New Member

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    Welcome to PriusChat! My, you certainly jumped right in. Must be a former lurker.

    Congress has been dragging its feet on the AMT matter since fall. Now, with the collective mood having shifted to "let's go through the motions, at least, of saving money where we can" (due to everyone in the House being up for re-election, and 1/3 of the Senate), who knows what they'll do?
     
  3. rdenneyutmb

    rdenneyutmb New Member

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    Oops! The anticipated credit was a factor in our decision to buy a Prius, though not the principal reason. (The car is great!) Though we have not yet been subject to the AMT, it looks like we could be with the lapse of the previous AMT relief in 2005, or at very least, have the credit severely reduced from what we anticipated.

    This is disturbing information, at best. I guess we will just have to write our representatives and wait and see what happens.
     
  4. kirbinster

    kirbinster Member

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    The AMT is GREAT! If we leave it alone within a few years we will effectively have a flat tax with no deductions and credits. This would be much more equitable than the current system. Right now you can have two tax payers with identical incomes that pay hugely different tax bills. Why should you pay less taxes because you have a huge mortgage than someone that owns their home outright? There are many many other things wrong with the current tax laws. The best thing do to would be to trash the entire system and replace it with a simple system that is the same for everyone. Plus that would put most accountants and lawyers out of work, an added benefit!
     
  5. the fish

    the fish Member

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    OP, thanks for posting this article. I am hopeful that the Senate extension will prevail and raise the AMT exemption. Otherwise, my wallet is getting lighter after losing out on my state's tax credit.
     
  6. Tempus

    Tempus Senior Member

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    Riiiiight

    You know when the AMT was put in place, there were only a handful of people making over $100K a year in the country. It's intent was to make sure they didn't get off without paying any taxes.

    Of course, the first thing they did was figure out how to get around it.

    Currently, do you really think the people with Million Dollar incomes think about the AMT at all? Of course not. If they were paying it, it would have been gone a long time ago. They just ignore it and their accountants wiggle around it.

    The only people caught by it are the true middle class, who get absolutely screwed, and wind up paying a tax rate that is twice what anyone else in the country pays.

    If you don't like the Mortgage Deduction get it removed, but don't pretend to yourself or anyone else that the AMT has anything to do with fairness.

    If you want a Flat Tax get one put in, but don't pretend that the AMT will flatten anything except average people.

    You're up on the soapbox ranting to the 'masses' about tax fairness, and the rich are rolling on the floor laughing at you, watching the struggling middle class spend energy calling each other names and pretending they have a moral point.

    Kind of sad, really.
     
  7. Walker1

    Walker1 Empire

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    What is AMT? Forgive me, but I am only a peasant and don't know what it means.
     
  8. moomin

    moomin New Member

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    We have an personally invested, fairly large sample of tax paying voters on this board alone. It would be ideal to target a few key congressfolk and flood them with letters (as opposed to all writing our own representatives, which will reflect little more than localized interest).

    Any ideas on which congresspeople have been particularly key in the last two or three tax code discussions? We could chanel letters through a particular posters mailbox if we have somebody on board in their home district.

    All feelings about flat tax aside... the AMT isn't a flat tax, it's a regressive tax that primarily strikes households with less than $175,000 of income annually, stripping away the deductions that allow wealthier tax payers to avoid paying a portion of their tax burden. Flatten out the single payer AMT and broaden the corporate AMT to cover every US corporation and you have a flat tax... but nobody is proposing that.

    Meanwhile, the Hybrid Vehicle Tax credit is being utterly negated. The cumulative lost benefit to the economy (within the supply-side economic model espoused by the current administration) is just under $400,000,000 on the sales of Toyota Prii alone. When all other manufacturers are factored in, we lose nearly one billion dollars in economic stimulus within the US economy, while sending close to four trillion dollars overseas to fund the manufacturing of the Hybrids that we love. Better to get the half billion dollars of stimulus than simple drive up the trade deficit because GM can't get a convincing hybrid model to the marketplace.
     
  9. MarinJohn

    MarinJohn Senior Member

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    AMT= Alternative Minimum Tax and was originally designed to make high income earners pay at least a MINIMUM tax, as they were making the most and paying nothing. Unfortunately, the incomes taxed were not adjusted for inflation so as incomes creepd up more and more "peasants" are now stuck paying into it. Just one more underhanded way to make more pay more tax without actually raising taxes, just like eliminating deductions thereby making more pay tax without 'raising' taxes. These days if it is underhanded and slimy it is a government sidestep of the political process which was put in place for a reason.
     
  10. kirbinster

    kirbinster Member

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    Nope you are wrong. AMT is around 25-28% - which makes it just about a flat tax. There should be no such thing as deductions, credits or exemptions to any tax. Those are all items that complicate the system to favor special interests. If there was a flat tax the super rich would pay more tax than you can imagine. Just think if they got not exemption or deductions and actually paid 25% of what they got as income?
     
  11. MarinJohn

    MarinJohn Senior Member

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    If we had a flat tax based on gross income and no person or entity excluded (including churches, non-profits, corporations, etc) I am willing to bet the tax rate would be sufficent at less than 5%. Of course, it would be grossly unfair as the wage earner would 'get away' with murder whereas self-employed people like building contractors would get killed as over half of their gross income is for materials, and not profit. none-the-less it's all a pipe dream as money talks (lobbyests) and 'po folks pays.
     
  12. Tempus

    Tempus Senior Member

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    You really don't have much of a clue do you.

    The AMT is 'just about' a flat tax.

    Wow.

    If there was a flat tax, then yes, the rich would pay more, but that is far from what happens with the AMT.

    As I said, if you want a flat tax, pass the law for it, but pretending that the AMT has any effect like a true flat tax, or that it affects wealthy people at all is just mind boggling.

    Of course, unless you're very wealthy. Then I can completely understand your wanting to keep up that fiction.
     
  13. bsd43

    bsd43 Member

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    The AMT is not a flat tax! Without the ordinary tax, people who make under the exemption limit basically pay no tax. And there're still a lot of preference items to keep the rich away from the AMT.

    If you want a flat tax, then put in a real flat tax. The AMT isn't it.

    (Not that I'm using it now, but I do have an accounting degree. And I'm pretty sure kirbinster needs to understand more about the AMT.)
     
  14. kirbinster

    kirbinster Member

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    Kirbinster understands the AMT very well and has been paying it for years. Kirbinster simply believes that everyone should pay tax and at the same rate and that the government should not reward people for having 12 kids or buying a house that they could not otherwise afford. Kirbinster also thinks that the government budget should be frozen and no increases should be allowed beyond the rate of inflation and incremental tax moneys should reduce the deficit and that the tax code not be used by special interest groups to forward their social policies.
     
  15. moomin

    moomin New Member

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    In principal, I hear what you're saying. But, frozen when? It makes a massive difference.

    Under Reagan and G. H. W. Bush federal spending was just above 22% of GDP, Clinton lowered that (unwillingly) to 20%. G. W. Bush has lowered it a fraction of a percent further. If we had frozen government spending during the Reagan revolution and had continued to spend 22% of GDP we would have spent $234,686,000,000 more last year alone. If we'd frozen it under Nixon that number jumps to $817,956,000,000 in spending annually.

    If we froze spending at 20% today and collected all anually assessed taxes from individuals and corporations the debt would be totally paid in just over ten years. But under Carter the total federal debt was less than 40% of GDP... if we'd frozen federal spending mid-malaise we would've paid off the debt by 1982.

    None of which has anything at all to do with a flat tax, or the current status of the AMT.

    A Federal flat tax would be fair, easy, and would result in a rapid repayment of the Federal Debt... Contrawise the AMT will strike 26 million middle class Americans, wiping out nearly all tax deductions and rebates, leaving those in the upper income brackets totally untouched. This is an unnecessarily punative and mean spirited way of forwarding the flat tax argument... in the end the only result is going to be a net loss in support for fiscal responsibility.

    And, as a final thought, you point out:

    Which is, again, a perfectly reasonable point. But the anciliary is that the government should promote and reward responsible behavior. It would seem, by the same logic you use above, that the Hybrid Tax Credit is enlightened, and should be protected from this capricious deletion at all costs.
     
  16. daniel

    daniel Cat Lovers Against the Bomb

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    The basic income tax is (slightly) progressive: if you make less than $7,300 and you are single, you pay nothing. Anything over that you pay 10% on the difference, until you reach the next bracket, etc. The top bracket is 35%, so if you make a lot of money and have no deductions, your overall tax rate approaches 35%.

    But the tax law allows deductions, which are essentially things that are not taxed. So some (not all) rich folks manage to get their real tax rate well below their nominal tax bracket.

    The AMT tries (with partial success) to put a floor of 25% to 28% under the level at which the rich can drop their tax. If you make enough money that you ought to be paying 30% of your income in tax, but you've claimed deductions that cut your actual tax rate down to 20%, you're going to get hit by the AMT so you pay your fair share after all.

    I don't like paying tax. And I pay a lot of tax, let me tell you! But tax is the price we pay for living in a (more or less) civilized society, and I don't have much sympathy for folks who whine because they can't use deductions to get their taxes under 25%. Me, I've never had to pay the AMT because my taxes are always well over the AMT amount, and you only pay the AMT if you've used deductions to get below that amount.

    The people I feel for are the ones who don't make enough to live on, the poor slobs making minimum wage at Walmart, who have no health insurance and can't afford decent housing.

    You don't want to pay the AMT? Just don't claim any deductions. Then you'll pay your real tax rate. All the AMT does is limit the amount of your income that you can shelter from tax.
     
  17. moomin

    moomin New Member

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    That's a better overview of the AMT dilema than I could've given. My only qualm is the use of the term "Rich." In post millennial dollars, $60,000 of income for a married couple, where both parties work, should put you somewhere in the middle class. Under the forcast 2006 AMT they'll be treated as "Rich."

    But unless you've got a fairly massive gap between AMT and your assessed tax rate sans deductions in 2005, the strong likelihood is that you'll be caught in the AMT regression next year. You may be fortunate enough to sail right over the new limits, but millions of people aren't.

    And, while you argue:

    The tax code is designed (as you point out) to be "slightly" progressive. The progressive nature of the code extends to the variety and nature of the deductions allowed. Most of those deductions are only attainable to those in the upper income brackets. When an attainable tax credit, like the Hybrid Vehicle credit comes along it's newsworthy for a reason.

    But this year the middle class had a shot at a credit that would've taken the sting out of a purchase of an environmentally reasponsible vehicle. Whether this was due to liberal guilt , compassionate conservative reenorcement of normative behavior, or some sort of Keynesian wealth redistribution there are comparatively few deductions that are within reach of the lower and middleclass tax payer. Now it looks likely that it will be taken away. This seems not only unfair, but mean spirited.
    But a few of them have saved up over time, and might just have been able to afford a Prius. And this tax credit would've helped to that end. They could've taken pride and satisfaction in being rewarded to do something virtuous for the environment. Instead they're likely to have that opportunity taken from them by a process that is hostile to their interests to begin with.
     
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