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Reforming a Tax on the Middle Class

By Eliot Engel
September 6, 2004

Listening to President George W. Bush, one could be led to think his tax policies are good for the middle class. Nothing could be further from the truth. In August 2003, the Congressional Budget Office confirmed what thousands of New Yorkers have known -- that the Bush tax cuts are causing middle class families to shoulder a larger tax burden than the wealthy, reversing the way things were before Bush took office. And for New Yorkers, the biggest tax bite can come from the Alternative Minimum Tax (AMT).

The Alternative Minimum Tax was first created in 1969 when it was discovered that the super wealthy were avoiding paying any federal income taxes by using tax shelters and deductions. To reform this, Congress created the alternative tax to insure that all Americans pay their fair share of taxes.

However, the threshold for having to use the tax has never been indexed to keep up with inflation. This means that over the past 30 years, as incomes have gone up along with the cost of living, the number of families being drawn into this tax has gone up as well -- an estimated 400,000 more in 2003 than in 2002. So, a well-to-do family making $60,000 and paying the alternative tax in 1969 has today become a middle-class family making $60,000 and now getting unfairly slammed this tax.

Fixing the Alternative Minimum Tax is essential for New Yorkers because it hits New Yorkers at a higher rate than most other states. In fact, close to 10 percent of the U.S. taxpayers who earn $50,000 to $75,000 and must pay the tax live in New York City. This is because residents of the Empire State pay higher state income taxes than most states, and the Alternative Minimum Tax eliminates any federal deduction for state taxes.

President Bush came into office promising tax relief and continues to campaign across the country saying that he has passed tax cuts for average Americans. But, if the President and the Republicans in Congress really wanted to provide tax cuts for average Americans in New York and elsewhere, they would have dealt with the growing problem of the Alternative Minimum Tax. Instead, they made the federal deficit balloon by enacting tax cuts for millionaires and for corporations that use overseas office fronts to avoid paying their taxes here in the United States.

Looking at which Americans have benefited from President Bush's tax cuts paints a very clear picture of who this Administration is watching out for. Upon entering office, the Bush Administration advocated a permanent end to the estate tax that only affected 49,000 of America's wealthiest families rather than fixing the Alternative Minimum Tax that affects 3 million middle-class families.

America's priorities should be just the opposite. This nation should reform the Alternative Minimum Tax before an estimated 41 million families are drawn into it in 2013. Sadly, the Republican-controlled Congress is using the income generated by the alternative tax to pay for tax cuts for the wealthy.

Our leaders in Washington should concentrate on relief for working people in New York and around the country. Today all over New York, middle-class families are feeling the squeeze of higher prices, unemployment, lower retirement earnings, and a strained economy.

Instead of using average Americans as a political football, President Bush should have provided real leadership during the past four years and ended the alternative minimum tax. That way, working Americans would keep more of their earnings and our federal deficit would not be a burden on the backs of New York's children and grandchildren.

Eliot Engel, a Democrat, is the U.S. Representative from the 17th Congressional District in the Bronx.

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