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Families Face Alternative Minimum Tax

STEVE INSKEEP, host:

It's MORNING EDITION from NPR News. I'm Steve Inskeep.

RENEE MONTAGNE, host:

And I'm Renee Montagne.

Here's a prime example of Washington speak: the alternative minimum tax. The AMT, as it's known, is hitting more middle-class taxpayers every year. And if your eyes are glazing over, you might want to listen up. The AMT could cost you to pay thousands more in taxes this season. To explain, we asked NPR congressional correspondent Andrea Seabrook to join us.

Good morning.

ANDREA SEABROOK: Good morning, Renee.

MONTAGNE: What is the AMT?

SEABROOK: Renee, the AMT, the alternative minimum tax, was a tax started in 1969 to hit ultra-rich people who were taking so many deductions for big houses, second houses, that they paid pretty much no taxes at all. So it's a tax that comes back and sort of bites people after they've taken out deductions if they take too many of them.

MONTAGNE: So why is it hitting the middle class now?

SEABROOK: Because it was never pegged to a standard of living or to inflation. So what in 1969 was rich is now middle class. People who made $100,000 in 1969 were rich people. Two parents in a family making $100,000 is not considered rich anymore. So as I was working on the story, several people told me, well, in places like Washington, New York, Los Angeles, Chicago, you can't throw a rock without hitting somebody who's paying thousands more in taxes in the alternative minimum tax. So I tested that. I made a big poster that said on it, have you been hit by the AMT, and I went out on the street, Pennsylvania Avenue in Washington.

MONTAGNE: That's pretty - Andrea, pretty nervy of you. What happened?

SEABROOK: Well, take a listen.

Have you been hit by the AMT? Sir, have you been hit by the alternative minimum tax?

Unidentified man: Yeah.

SEABROOK: Have you been hit by the AMT? You have? Tell me your name. Where are you from?

Ms. HILLARY DAVIDSON(ph): Hillary Davidson. I live in Bethesda, Maryland.

SEABROOK: Do you live in a big mansion? Do you have lots of fancy cars?

Ms. DAVIDSON: No, very much middle class.

SEABROOK: But you were hit by the AMT?

Ms. DAVIDSON: Yes. Yes.

SEABROOK: And how much - do you know how much it hit you for that you were expecting?

Ms. DAVIDSON: It was either $10,000 or a little bit below. It was a painful year.

SEABROOK: The alternative minimum tax usually kicks in when a single person makes $75,000 a year or a married couple makes $150,000. These people have to calculate their taxes in two ways, the normal way and an alternative way that doesn't allow for tax breaks for children, mortgages, high state taxes. You pay whichever is higher. The AMT hits hardest in suburban areas.

To get a better picture, I visit the modest home of Amy and Dino Efantes(ph). Walking to the porch I pass a new Toyota minivan.

(Soundbite of knocking on door)

Ms. AMY EFANTES: Hi.

SEABROOK: Hi.

Ms. EFANTES: Come in.

SEABROOK: Thank you.

It's dinnertime. Amy Efantes is making chicken stir-fry, and their three children - ages four, three and almost two - are bouncing around the kitchen. I asked Dino Efantes about the new minivan out front and he tells me that their old blue 1989 Hyundai died one day when he was picking up the three kids from daycare.

Mr. DINO EFANTES: I'm shifting it in neutral and revving it until all its got left, you know, is death throngs, you know. Brrrr. Brrrr. Brrrr. Finally we get to the driveway and I just turned in and the car is dead. And I put it in park for what I know is the last time, this car. You know, and then Kiki(ph) just said to me and she says, dada, I think blue car is going to live with Jesus.

Unidentified Child: Mama.

SEABROOK: That's when the family bought the minivan. Dino Efantes is a music teacher in the local Catholic school. His wife, Amy, recently started a job for a trade association in Washington. And that's the problem. With her small bump in pay and the tax breaks they get for those three kids and the mortgage, they are right on the line for paying the alternative minimum tax.

Ms. EFANTES: It's a big shock now looking at the tax hit.

SEABROOK: Yeah. Do you know what the bill will be, roughly?

Ms. EFANTES: I don't know. I have co-workers who last year had to write five-figure checks to the IRS.

SEABROOK: In the tens of thousands or so.

Ms. EFANTES: Yes. It was a big hit for them.

SEABROOK: Not everyone's hit is that big. But according to the congressional Joint Tax Committee, half of all taxpayers will pay the AMT in the next decade if it's not changed. That's got the new Democratic leadership in Congress fired up.

At a hearing on Capitol Hill, Pennsylvania Democrat Allyson Schwartz and others lashed out at a Bush administration official for the president's proposed one-year fix of the problem.

Representative ALLYSON SCHWARTZ (Democrat, Pennsylvania): Come on. You're the administration. It is not good enough to just say we're open for suggestion.

SEABROOK: In the coming months Democrats are hoping to scale back president Bush's tax cuts for wealthier Americans to help fix the AMT, and that's sure to bring a political fight.

Andrea Seabrook, NPR News, the Capitol.

MONTAGNE: And you can learn more about how the AMT can affect you at npr.org. Transcript provided by NPR, Copyright NPR.

Andrea Seabrook covers Capitol Hill as NPR's Congressional Correspondent.