Obama Wants Congress to Halt AMT Tax Hike on Middle Class by Dec. 31

By Fred Lucas | November 5, 2010 | 4:30 AM EDT

White House Press Secretary Robert Gibbs. (AP Photo/Charles Dharapak)

Washington (CNSNews.com) – President Barack Obama believes that Congress must act before the end of the year to stop a tax hike that would disproportionately hit middle-class earners, said White House Press Secretary Robert Gibbs.

If Congress fails to act on the Alternative Minimum Tax (AMT), it could mean a tax hike for 22.7 million American households, many of whom earn less than $250,000. Absent congressional action this year, “one in six taxpayers will be affected by the AMT, paying on average an additional $3,900 in tax, and nearly every married taxpayer with income between $100,000 and $500,000 will owe some alternative tax,” according to the non-partisan Congressional Budget Office, the accounting arm of Congress.

That increase would violate an Obama 2008 campaign pledge to raise taxes only on couples making more than $250,000 and on individuals earning more than $200,000.

“There isn’t an AMT patch for 2010,” Gibbs told reporters on Thursday. “That is specifically something, as most of you know, that was designed for something far different but disproportionately now impacts middle class families. This issue has to be dealt with in the next few weeks. We know for middle-class families, they are going to get a different tax bill and they are going to owe more money than if we sit down and work together to compromise.”

Among those subject to this already-in-place tax increase are some families making less than $50,000 per year, and virtually all married couples earning between $100,000 and $500,000 a year, according to the CBO. (See earlier story.)  

Congress could stop the tax hike by enacting legislation that temporarily increases the amount of income exempt from the Alternative Minimum Tax. The temporary reprieve passed by Congress for each of the past nine years expired on Dec. 31, 2009 and, so far, Congress has not extended the AMT "fix,” or “patch,”  for 2010.

The CBO estimates that 4.5 million American households were subject to the AMT in 2009, and 27.2 million are now liable to pay the AMT for the 2010 tax year unless Congress acts before Dec. 31. Under current law, at least 22.7 million American households that did not have to pay the AMT last year will have to pay it on the income they have been earning since Jan. 1 of this year.

The AMT, enacted in 1969, was intended to impose taxes on high-income earners who used deductions and loopholes to escape their liability under the regular income tax. Because the tax has not been adjusted for inflation since then, additional families at progressively lower income levels become subject to the tax each year.

President Barack Obama. (AP Photo/Charles Dharapak)

“What the president believes is, we have both houses coming back and that this is an issue that must and has to be dealt with in that session,” Gibbs said.

According to the CBO, among the households that will be hit with the AMT this year under current law include the following: 3 percent are households making less than $50,000 a year; 35 percent are household making between $50,000 and $100,000 per years; 47 percent are households making between $100,000 and $200,000 per year; and 14 percent are households making between $200,000 and $500,000 per year.

“Because of the particular tax preferences and exemptions disallowed under the AMT, that tax structure is more likely to affect married couples, large families, and taxpayers in states with high state and local taxes,” according to the CBO.

Repealing the AMT completely and permanently would add $626 billion to the federal debt over the next 10 years, the CBO reported.