Even if the Bush tax cuts for the wealthy — those making over $250,000 a year — are taken away, it doesn’t necessarily mean the richest will be paying more, according to one tax expert.
“People have not understood the effects of the Alternative Minimum Tax here,” said Andrew Friedman, a former partner at law firm Covington & Burling, during an interview on CNBC.
He said that those who have qualified for and have been paying the Alternative Minimum Tax previously, but will no longer qualify for it after the Bush tax cuts are expired, could get a credit for the alternative tax that they have paid over the years.
"Some will see that their regular tax will exceed their alternative tax when the regular taxes go up," Friedman explained. "But I think what people have not realized is that the alternative taxes paid in prior years can then be carried forward and offset against their new higher regular taxes.”
“You end up getting money back when your regular taxes go up and you credit your AMT," he said.
"Most people believe once they’re in the AMT, they’re always in the AMT. This is one of the few times when we’re seeing a tax increase in the last 30 years and the first time I think that this will come into play,” Friedman said.
The expiration result might mean less revenue for the government then expected.
“They’re not going to get as much, perhaps, as expected,” Friedman said. “If the Bush tax cuts expire only on families over $250,000 in income, the revenue raises only about $70 billion a year. You compare that to a $1.5 trillion deficit."
"So it certainly is money, but it’s not the quantity of money that I think people are expecting," he added. "And then it could be even a bit lower if some of these AMT considerations come into play.”