The reality behind the alternative minimum tax

Yesterday, the House of Representatives passed an $80 billion bill which would prevent the alternative minimum tax from impacting the middle class next year. To make up for the lost tax revenue as part of the bill, democrats have proposed eliminating a loophole which provides tax breaks for wealthy entities such as for hedge funds and private equity funds. The President meanwhile has vowed to veto the bill should it make it to his desk, which still has to make it through the senate. Here is why this matters.

The alternative minimum tax (AMT) was created in 1969 to prevent certain wealthy entities from enjoying unfair tax breaks and perks. However, it was not indexed for inflation, so as the wealth of the middle class has grown since that time, middle class tax payers have worked themselves into this tax bracket, despite lacking the wealth of the equivalent tax class in 1969. In short, the people who would be taxed by this tax in 2008 would not be the intended target as the tax was intended. Despite this, the president feels it would be unfair to shift the burden of this tax onto the rich, implying the middle class should undertake the burden, despite the fact that the AMT was intended to go after these very wealthy individuals. Such flawed rhetoric is too commonplace today. Should no agreement come about between congress and the president, middle class tax payers could pay as much as double their current taxes next year.

There are too many tax loopholes in place for the wealthy in this country, and closing one of these loopholes would be a major step in the right direction towards restoring some sense of balance of wealth in this country, as wealth translates directly to power. Tax breaks are given to the rich under the misunderstanding that concentrating more wealth at the top is essential for economic growth. The argument is that when the rich have more money to invest, they are able ignite the economy be initiating new business ventures via a greater amount of investment capital, which comes via greater tax breaks. This is known as trickle down economics, which truly serves as a front to further divide the economic classes and reward the elite disproportionately. This is the problem with the power structure in this country. Wealthy individuals are determining the rules for wealthy individuals, put into office by further wealthy individuals via campaign finance donations. Furthermore, by the very nature of economic class, our leaders are in a conflict of interest. I know for a fact that if the AMT had the same economic impact on the members of congress as it would have on the middle class, there would be no debate to this bill. As usual though, the rich have found a way to sponge off the rest.