WASHINGTON – A Baltimore firefighter told a House subcommittee Thursday that the alternative minimum tax, a measure aimed at the wealthy, is actually crippling middle-class Americans by sticking them with a higher tax bill.
"When I first heard the words 'alternative minimum tax,' I figured that with the words 'minimum' and 'tax' together, if anything, taxpayers would fork out less to Uncle Sam, not more," Michael K. Day Sr. told House Ways and Means Committee members on the Subcommittee on Select Revenue Measures.
"I figured that the AMT would be anything but a tax increase; that it would target anyone but firefighters; and that it would impact anyone but middle-class Americans," he said. "Unfortunately, I was dead wrong."
Day, president of the Baltimore County Professional Firefighters Union was testifying on behalf of middle-class families and firefighters nationwide, he said.
It was the subcommittee's second hearing this year seeking fixes for the AMT, and it was held to examine the tax's impact on families.
The alternative minimum tax, enacted in 1969, was initially designed to catch millionaires who were avoiding tax liability through tax exclusions, deductions, and credits, said Rep. Richard Neal, D-Mass., the subcommittee chairman.
The tax requires Americans at certain income levels to calculate their federal income tax at least twice: once with deductions and then using the Alternative Minimum Tax. They must then pay the higher of the two.
Day told subcommittee members that it was time for lawmakers to "roll up your sleeves," and "get it right."
"Do you consider a firefighter, married with three kids, well off?" he asked. "I am just trying to raise my family, pay my mortgage, and make ends meet."
Between Day's two jobs — firefighter and union president — and his wife's freelance secretarial work, his family's income is in the $82,000 to $88,000 range, he said later. Recently, he prepared his taxes, only to learn that the AMT will stick him with a higher tax bill next year, if Congress does not change or repeal the measure.
Under current law, married taxpayers with no dependents filing joint returns could be subject to the federal tax at income levels as low as $75,395 for the 2007 taxable year, due to changes in the tax structure resulting from recent tax cuts, the subcommittee said. Because personal exemptions are not allowed in the AMT, the tax could also affect a family of four earning as little as $66,000.
The number of people impacted by the AMT has remained at about 4 million people for the past seven years, thanks to adjustments enacted each year by Congress.
Without a change in the measure, the AMT is estimated to affect more than 23 million taxpayers in 2007.
"We've all seen those commercials where the parents tell the kids that this year, they'll finally get to go to Disneyland," Neal said in an opening statement at the hearing. "Well, imagine the follow-up conversation where the parents deliver the bad news that the AMT took away their trip to see Mickey."
Many middle-class families are unaware that they may be hit with a bigger tax bill next year, lawmakers and witnesses said.
Moreover, David Lifson, a certified public accountant and president-elect of the New York State Society of Certified Public Accountants, testified that those subject to the tax will experience not only a $500 to $1,500 federal tax increase, but also higher tax preparation costs.
Tax preparers must make additional calculations to determine the final outlay of someone subject to the complicated tax.
And, Neal said, tax experts estimate that if recent tax cuts are extended, the number of taxpayers paying the AMT will increase to more than 48 million by 2016.
Over the past seven years, Day said, Congress has delivered $1.8 trillion in tax cuts to the wealthiest Americans, while the middle class was ignored. Some he said, were rescued from the AMT temporarily with 11th-hour Band-Aid provisions.
"Common sense needs to prevail on this subject," Day said. "The patch approach isn't going to cut it."
Capital News Service contributed to this report.