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Financial Literacy - Taxes
SPOTLIGHT
The tax system needs an overhaul
The political environment is poisoned because most legislators have signed a no-new-taxes pledge.
Taxes made easy

Interview: Leonard Burman, Ph.D.

Len Burman is a bona fide tax wonk. He has labored for more than 20 years to shape and study the effects of tax policy, stepping into professional life with public policy expertise earned during his doctoral studies, where his dissertation work examined the effects of tax policies.

At a glance

He has written extensively on tax policy, authoring, among other things, the tax tome, "The Labyrinth of Capital Gains Tax Policy: A Guide for the Perplexed." The subtitle is a nod to a 12th century classic by Moses Maimonides and, like the original work, tackles and explains complex topics.

Burman is director of the Tax Policy Center, which is a joint project of the Urban Institute and the Brookings Institution. He readily admits that his interpretation of tax issues might not coincide with those of his colleagues.

He shares with Bankrate the serious changes that need to be made soon in this country if we are to avoid an Argentina-like future.

You have built your career on making a study of tax policy. Which issues are most pressing to taxpayers right now?

The thing that's getting the most attention in the media is the Alternative Minimum Tax (AMT), and if Congress doesn't change the law soon, 20 million new people who have never been affected before will have to pay the tax this year. A lot of middle-income people are subject to the tax. In fact, under current law you're more likely to be subject to the AMT if you make between $75,000 and $100,000 than if you make over $1 million. Yet it was originally enacted to make sure the wealthiest Americans were paying their fair share. [Editor's note: Within a week of the original publication of this story, Congress passed legislation that extends AMT relief for one year to some 23 million taxpayers.]

Beyond that, the AMT is the poster child for tax code complexity. You have to figure your tax under two completely different sets of rules. Can you deduct your state income taxes? It depends. Will you get a big tax credit when you buy that new hybrid? Maybe -- not if you're on the AMT.

Adding to the uncertainty is Congress's penchant for "patching" the AMT a year at a time, by raising the amount of income exempt from the tax. Right now, most of your readers are probably in line for a big tax increase because the patch hasn't been enacted yet, but that's likely to change. But this is a really dumb way to run a tax system.

-- Updated: Dec. 26, 2007
 
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