Is This Year's Patch Paving the Way for Next Year's Reform?

Clint Stretch of Deloitte Tax comments on the 'Temporary Tax Relief Act of 2007'

WASHINGTON, Oct. 31 /PRNewswire/ -- Tomorrow, the House Ways and Means Committee will consider legislation to bring temporary Alternative Minimum Tax relief that will impact millions of taxpayers. In anticipation of this markup, Clint Stretch, managing principal of tax policy for Deloitte Tax LLP, released the following statement:

"Once again, Congress is moving towards momentary AMT relief with consideration of the 'Temporary Tax Relief Act of 2007.' Markup of this legislation accomplishes two things. First, it prevents 20 million American families from receiving unexpected tax bills next April. And second, it puts off for yet another year the hard political choices that will go with repealing this fundamentally flawed tax.

"The Tax Relief Act 'patch' legislation to be considered by the Ways and Means Committee will stem the growth of the AMT for another year. Under the proposed law change, taxpayers would continue to use a higher exemption to reduce income subject to the AMT. The legislation will prevent a dramatic increase in the number of AMT taxpayers for the 2007 tax year. Without this change, the number of taxpayers expected to owe AMT in 2007 would skyrocket from 3.6 million to 23 million taxpayers.

"For 2007, the Committee has proposed raising the AMT exemption for married and single taxpayers to $66,250 and $44,350, respectively. The exemptions were $62,550 and $42,500 for those same taxpayers in 2006. Without the proposed patch, the exemptions would have dropped to $45,000 and $33,750, respectively.

"Our Deloitte Tax LLP analysis illustrates the effect of the proposed AMT patch. A hypothetical working couple with four children, earning $75,000 annually, would face an AMT liability of $2,000 without the latest round of proposed relief. The 'patch' will prevent this family from paying the AMT, which was originally destined only for the wealthiest taxpayers.

"Savings also would accrue to single taxpayers under the proposed patch. For instance, most single taxpayers who have AMT liabilities and who earn about $150,000 would also likely feel some relief from the new legislation. For example, a typical single high-income taxpayer earning $300,000 annually could save up to $1,700.

"Taxpayers will welcome this patch and the Committee's markup scheduled for tomorrow, but without similar intervention next year by Congress or substantive reform, the same risk of escalating AMT liabilities will be back on their doorstep next year.

"The AMT, once designed to ensure that a small number of taxpayers with substantial economic income could not escape income tax altogether, has, over time, grown into a separate tax system affecting millions of taxpayers.

"Large families and residents of states with higher taxes, such as California, Connecticut, Minnesota, New Jersey and New York, are particularly susceptible to the AMT since the AMT disallows personal exemptions and state and local tax deductions."

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AMT PATCH / Chairman's Mark 10-30-07
COMPARISON OF TAX LIABILITIES - SUMMARY
Average State and Local Taxes

Scenario Household Current With AMT Increase
Income Law Patch (decrease)
Single, no children 1 $100,000 $15,600 $15,600 $0
Single, no children 2 $150,000 $27,600 $27,600 $0
Single, no children 3 $200,000 $41,900 $39,600 ($2,300)
Single, no children 4 $300,000 $70,800 $69,100 ($1,700)
Single, no children 5 $450,000 $109,900 $109,900 $0
Single, no children 6 $1,000,000 $271,600 $271,600 $0
Married, 4 children
under 17 7 $75,000 $3,800 $1,800 ($2,000)
Married, 4 children
under 17 8 $100,000 $6,700 $4,200 ($2,500)
Married, 4 children
under 17 9 $200,000 $36,500 $31,000 ($5,500)
Married, 4 children
under 17 10 $500,000 $120,400 $120,400 $0
Married, 4 children
under 17 11 $620,000 $151,000 $151,000 $0
Married, 4 children
under 17 12 $1,000,000 $262,700 $262,700 $0



AMT PATCH / Chairman's Mark 10-30-07
COMPARISON OF TAX LIABILITIES - SUMMARY
High State and Local Taxes

Scenario Household Current With AMT Increase
Income Law Patch (Decrease)
Single, no children 1 $100,000 $15,600 $15,600 $0
Single, no children 2 $150,000 $28,100 $27,600 ($500)
Single, no children 3 $200,000 $42,900 $40,100 ($2,800)
Single, no children 4 $300,000 $73,400 $72,400 ($1,000)
Single, no children 5 $450,000 $111,900 $111,900 $0
Single, no children 6 $1,000,000 $271,600 $271,600 $0
Married, 4 children
under 17 7 $75,000 $3,800 $1,800 ($2,000)
Married, 4 children
under 17 8 $100,000 $7,000 $4,200 ($2,800)
Married, 4 children
under 17 9 $200,000 $37,500 $32,000 ($5,500)
Married, 4 children
under 17 10 $500,000 $124,700 $124,700 $0
Married, 4 children
under 17 11 $620,000 $155,500 $155,500 $0
Married, 4 children
under 17 12 $1,000,000 $262,700 $262,700 $0

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