Pelosi's Health Care Tax May Become The New AMT

Back in 1969, Congress was tired of rich people cheating the tax system and decided to act, passing the Alternative Minimum Tax.    The AMT was designed to make sure the richest 1% of the population was doing their fair share and paying up.

Few Americans at the time were upset about this development, and why should they be?   The newfangled and oddly named tax only impacted a few thousand filers.   In 1970, just 19,000 rich income tax filers were captured by the AMT.

My how time, inflation and lack of caps changes things.

This year more than 25 million families are likely to get snared by the AMT.    Amazingly, a tax that was designed to impact just 1% of the population forty years ago is now expected to capture about 25 million households this year.   Unless its stopped, AMT will grab nearly 40 million households by 2017 and an estimated 70% of the population by 2080!

All that from a small little tax designed to grab just 1% of the population.

Sound familiar?

Like AMT, Pelosi's plan is also not indexed to inflation.   Over time, incomes will rise with inflation, snaring more people each year with the tax.   Like AMT, those defined as 'rich' today may be the next generation's middle class.

Yeah, it's in vogue to attack the rich these days.   Anyone who tries to defend the group against higher taxes is branded as heartless, amoral, unethical or just downright rotten.    But ask yourself why just 40% of the population pays nearly all federal income taxes.   It's in large part thanks to the AMT and the unintended consequences of inflation on income.

Unless the Pelosi plan indexes its 'rich' tax levels to inflation, what may seem like a tax on a small, elite group now could easily become the next great middle class tax trap.