Since the Republicans have made it clear that they won't even allow tax rate increases on the highest income earners, and the President is insisting on tax rate increases on incomes ov $400,000 or more, it would appear highly unlikely for Senate Majority Leader Harry Reid (D., Nev.) to push the Senate to pass anything palatable to the Republicans.
AMT Time Bomb
Many economists have predicted that "falling off the Fiscal Cliff" will push the U.S. economy back into recession. Another major problem over the short-term is the Alternative Minimum Tax. The AMT was enacted in the 60's, in order to make sure that taxpayers with a large amount of deductions to their taxable income would be forced to pay a minimum federal income tax.
The AMT law is not indexed for inflation. Each year, Congress passes a "patch" in order to address this problem. The patch hasn't yet been passed, and time is short, because the Internal Revenue System needs to know the AMT rules for 2012, in order to do correctly process tax returns and tax refunds, beginning in January.
Acting IRS Commissioner Steven Miller sent a letter to Congress in November and another
letter on Wednesday
, saying that "the most recent AMT Patch, and the exemption amounts of $74,450 for joint filers and $48,450 for single taxpayers, expired at the end of 2011," and that without a new patch for 2012, "the current-law AMT exemption amounts are much lower: $45,000 for joint filers and $33,750 for single taxpayers."
"This means that 30 million additional taxpayers will become subject to the AMT on their 2012 income tax returns."
Miracles do happen. Our friends in Washington may get their act together and pass the 2012 AMT patch, but if they do not, Miller said that "most taxpayers may not be able to file their 2012 tax returns until late March, or even later." When factoring in the software changes required with no AMT patch and the calculations taxpayers will need to make in order to find out whether or not the AMT will apply to them, Miller said "it is becoming apparent that an even larger number of taxpayers - 80 to 100 million of the 150 million total returns expected to be filed - may be unable to file."