The alternative minimum tax and one man’s 74 percent tax rate

January 31, 2012

In his Saturday column in the New York Times, Pulitzer-prize winning reporter James B. Stewart tallied up his tax rate and found it to be a shocking 74 percent of taxable income. Is he possibly the most taxed man in America, he wonders?

Tax rates have been much discussed of late, with Mitt Romney’s tax returns disclosing his 13.9 percent tax rate, and the appearance of Debbie Bosanek, Warren Buffett’s secretary, at the State of the Union address last week to boost President Obama’s push for more tax equity.  Bosanek is reported to pay a 35.8 percent tax rate, while her famous boss says his rate is 17.4 percent of his taxable income.

How could Stewart’s rate be so stratospheric? After some research, he determined that his personal situation is “a near-perfect storm of punitive tax policies.” He lives in one of the highest tax districts in the country (New York City), earns his income (rather than getting it from capital gains or carried interest, a la Romney), doesn’t have a significant mortgage deduction and pays an unincorporated business tax on some of his income, like book royalties.

Even his very generous donation of 25 percent of his income to charity did only limited good (for his taxes, at least).

The high local and state income taxes he pays in New York help to make Stewart’s deductions (which include those taxes) high relative to his income and that activates the alternative minimum tax (AMT), a painful burden to those who bear it.  Also, a burden that more of us will be bearing if changes aren’t made this year in Washington.

Originally designed as a way to make sure the wealthy pay their fair share (sound familiar?), over time the AMT has slipped down to cover many who more rightly would be considered middle class.

Stewart writes:

The A.M.T. added just $233,000, or 8 percent, to Mr. Romney’s federal tax bill. It added 40 percent to mine. According to the Tax Policy Center at the Brookings Institution, 51.7 percent of taxpayers reporting incomes of $200,000 to $500,000 paid the alternative minimum tax in 2012, while just 41.6 percent of taxpayers reporting more than $1 million did.

Like so much of tax policy, the AMT is dealt with in fits and starts. In 2010 a “patch” was passed to make sure the tax didn’t hit too many more Americans, but now it has expired. Unless Congress takes action by the end of this year, its reach will expand quickly.

According to this excellent primer on the AMT from the Tax Policy Center, if the AMT tax cuts are not extended this year, the percentage of taxpayers owing the tax will jump from 5 percent to more than 20 percent in 2013, and 94 percent of those with incomes between $200,000 and $500,000 will owe the tax in 2012.

Those hardest hit by the tax are families with a number of children, and those living, like Stewart, in places with high local and state taxes.

According to the Tax Policy Center:

The top five states in terms of percentage of returns on the AMT are New Jersey, New York, Connecticut, the District of Columbia, and California with rates ranging from 8.7 percent to 6.5 percent in 2008. In contrast, less than 2 percent of taxpayers in Alaska, Nevada, South Dakota, Tennessee, West Virginia or Wyoming paid the alternative levy.

Some politicians and others have called for a permanent fix to the AMT, but the trouble is that the tax is expected to bring in a lot of tax dollars over the next decade, and ending it permanently would require lawmakers to find a substitute revenue stream.

The Tax Policy Center calculates that extending the patch would shave $85 billion in revenue in calendar year 2012 and reduce the number of taxpayers affected by 85 percent from over 31 million to 4.6 million.

Ending it permanently, however, would cost a stunning $1.1 trillion through 2022.

“It’s either a win win, or a lose lose,” said Jim Nunns, senior fellow at the Center. Nunns predicts that given the path most tax issues have followed in recent months, the AMT is unlikely to get much real attention until later this year.

But Stewart’s piece clearly hit a nerve in other parts of the country. So far there are more than 400 comments from readers.

What do you think? Add to the debate below.


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It is THE stealth tax no one understands it not even the pros [at least not the amt credit] yet even single moms get hit and as you so point out a VERY attractive revenue stream for our elite 535

Posted by Waltermitty | Report as abusive

Peter Schiff’s tax rate is about that amount.

Posted by Skid | Report as abusive

unless he is using taxes paid to GROSS income, any % given is suspect. this is the only standard that can be universally compared. so mr stewart, what is your % of gross income paid in taxes. the second issue is the large tax differences by state, which of course are not to be confused with federal taxation. obviously this man feels that the advantages of living in nyc outweigh moving to a lower taxed state. he has a choice, so once that choice is made it’s hard to get concerned about someone complaining about their own choice.

Posted by jcfl | Report as abusive

Unfortunately Mr. Stewart, our taxes are even greater still!

You’re only taking into account income taxes. What about all of the indirect and hidden taxes, we’re burdened with everyday? Such as our utility taxes, hidden in the form of direct, monthly payments to quasi-government utility providers?

How about the garbage and recycling tax? Education taxes?

Road-use taxes in the form of DMV fees, parking tickets, tolls, registration, license, etc?

The taxes on your private bills, like telecommunications?

Liquor and tobacco taxes, and all sales taxes for that matter?

Taxes in the US are a far cry from just the income taxes that the federal government imposes.

Taxes are prolific, intentionally obfuscated and purposely enigmatic.

I’m sorry to say Mr. Stewart, if your direct income taxes are 74%, then your REAL income tax rate could easily reach 90%+.

Posted by laducsp | Report as abusive

we want flat tax… 15% across the border… this is nonsense… why do you work for then? this is silly… outrageous… i am shaking…

Posted by Ocala123456789 | Report as abusive

At last count the agency from which one can obtain a printed copy of Title 26 of the US Code (the Internal Revenue Code) the printed pages numbered 13,456. Our Draconian tax code is intricately intertwined with our campaign finance, lobbying based Congress, which uses taxation to pay back contributors through tax policy. Until we reform and simplify our system of taxation there will be no effective way to compare who pays what. Imagine trying to understand over 13,000 pages of regulation just pertaining to income taxes! The level of taxation is really not the issue, it is the complexity of taxation.

Posted by BobWR | Report as abusive

Well, yess … been there and done that. America’s taxation is regressive for people and businesses bracketed in the middle income level. And as taxes are capped, so to has the deficit grown. It is high time to end this madness.

Posted by SanPa | Report as abusive

Tennessee has one of the highest sales tax in the country. We have the highest tax on groceries. We also have the same taxes as everybody else; property, education, communications, trash – everything gets taxed here.

We would be happy to see those 13,000 pages burned and the code re-written from scratch. This is ridiculous.

Posted by Sophiewise | Report as abusive

Move to Texas. No state or local income taxes.

Problem solved. Well, at least partially…

Posted by Bigwiggle | Report as abusive

Much time is spent by the writer on ‘local and state’ taxes. Those are your fault. Some states, like Oregon, do not even have a sales tax. Others do not have a state income tax. Others just have low taxes period. A pack of cigarettes in New York City is $13. That’s not because of shipping costs. The tax your landlord pays on your apartment in New York City is around $12,000 per year. Which he has to pass on to you. If you don’t like high local taxes, quit voting for them. Or move.

Posted by AlkalineState | Report as abusive

Not buying it, this guy is anti-tax zealot. I don’t buy his claim for 1 nano-second. For example he claims that he has some extra income tax on unincorporated business income, sorry but that is just taxed at normal income tax rates and is NOT a separate tax. New York has a income tax rate of 8.97%, which is deductible off federal taxes. This guy is using Enron accounting.

Posted by Jmaximus | Report as abusive

Wait a minute! His tax rate is 74%, he had charatibles of 25%.

So to keep the math easy for every $1 he donated .25 leaving him with .75 of taxable money. Of that .75 he paid in effective taxes of .555 cents on every dollar leaving him with .195 cents on each dollar earned. Not buying it.

Dude if this is true, your an idiot for living in NY!

Posted by w3xcubra | Report as abusive