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AMT was originally designed in the Nixon era to ensure that even rich people paid taxes. So if you make X amount of dollars, if you have so many deductions that you start to pay less than the goverment thought you should, the alternative minimum tax kicks in to ensure you pay your fair share.
Problem is the AMT was never indexed with inflation. So more middle class taxpayers were getting slammed with the rich guy tax.
Congress recognized this and raised the AMT income threshold each year. Congress was poised to do that again. However, "pay go" budget rules say that if you spend x dollars, you must find a way to pay for it. So the Dems proposed a tax on a handful of profoundly rich Wall Street buyout and hedge managers to pay for that extension. Repugs said no to that. And the Dems don't have enough votes to overcome the Reps in the Senate.
Now, attached to the AMT legislation were a handful of other tax credits -- very lovely Clintonesque credits that make it a little easier to pay for child care, job training, etc. Idea was that even if a taxpayer got slammed with AMT, they could keep those credits.
But with the increasing view that the AMT bill is going nowhere, you find 23 million taxpayers -- and that's a lot of people -- who will suddenly find out that their taxes for 2007 is a whole lot higher than they expected. And if you get hit with the AMT tax and were qualified for the extensions, you'll lose those, too.
On the other hand, the handful of Wall Street execs -- who have spent a boatload of money on K Street the past few months just to defeat this bill -- are breaking out the champagne and planning their vacations to Bali.
Sorry if it was too ambiguous before; AMT is complicated and few are sure whether or not they will get stuck with it at the end of the year. But this is a very big deal that will affect millions who are already dealing with mortgage problems, gas prices, and so on. It just sucks.
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