I want to talk about an issue that I have been researching for a while. One that if not corrected could cause problems for many tax payers. The AMT tax has not been adjusted for inflation since 1969! This tax was originally designed to tax higher income earners from avoiding taxes through various shelters and other means. Most American’s income has been increasing at the rate of inflation while the AMT has been stagnant. This means that several new individuals will now qualify to be subjected to the AMT. The government seems to be doing little about the issue along with several other issues.

The House will be meeting to “discuss� the issue, but will likely do nothing more than create a temporary band aid to help keep $23 million tax payers from being at risk of paying the tax this year. Some in congress actually have it right and want a complete tax system overall.

Recent years have seen temporary “patches� applied to AMT provisions of the tax code to ensure that few new taxpayers become eligible for the AMT. Last year, about 4 million U.S. taxpayers were subject to the AMT.

Although legislation is still under development, Estimates indicate that repeal of the AMT would leave a $1.35 trillion hole in the federal budget over the next decade. Finding revenues to plug the gap is daunting and politically difficult to achieve. Some have proposed increasing tax rates on household incomes of $100k or more allowing tax cuts enacted since 2000 to expire for top earners, and other measures to ensure that any tax reform is “revenue neutral.�

Ironically, testimony before the committee by Leonard E. Burman of the Urban Institute indicated that tax cuts enacted over the last six years have actually increased the number of people who may become subject to the AMT. Burman’s well-documented research shows that, absent tax reform, more than twice as many taxpayers will be AMT eligible in 2007 than would have been the case prior to enactment of the tax cuts.

Once hearings are complete and legislation is drafted, both houses of Congress must act and the president would need to sign the bill for it to become law. The prospects for comprehensive reform at this time are doubtful. Sentiment for reform seems strongest in the House and weakest in the Senate, where the Democrats have a bare majority. The president, in any case, is unlikely to sign such a bill if it reaches his desk.

Major reform of the tax code is unlikely this year, and allowing 23 million taxpayers to become eligible next April for the AMT is politically unpalatable. It will take a substantial majority for either party in Congress and a sympathetic president to allow serious tax reform to take place.

Some interesting, but important news on the automobile front. It would seem that our preaching about running a car into the ground makes financial sense. We have always suggested that our clients buy a quality car with cash, drive it for as long as possible, then buy a new car with cash. According to Consumer Reports magazine, by keeping your car for 15 years, or 225,000 miles of driving, you could save nearly $31,000! This is compared to the cost of buying an identical model every five years, which is roughly the rate at which most car owners trade in their vehicles. These are significant savings, which if invested properly could make you a millionaire.

The key to success is to buy a “Quality Car�. Many people equate the word quality with expensive. This is not true generally. Certain vehicles if maintained properly will easily last to 225,000 miles. Some standard brands bear recognition. Honda, Lexus, and Toyota. Mercedes is not on the list folks…Well it is, but on the bad list…Cars to avoid.

The magazine did some math:

Calculating the costs involved in buying a new Honda Civic EX every five years for 15 years - including depreciation, taxes, fees and insurance - the magazine estimated it would cost $20,500 more than it would have cost to simply maintain one car for the same period.

Added to that, the magazine factored in $10,300 in interest that could have been earned on that money, assuming a five percent interest rate and a three percent inflation rate, over that time.

In order to makie it to 200,000 miles, a car has to be well maintained. The magazine recommends several steps to help your car reach such a high milestone.

• Follow the maintenance guide in your owner’s manual and make needed repairs promptly.

• Use only the recommended types of fluids, including oil and transmission fluids.

• Check under the hood regularly. Listen for strange sounds, sniff for odd smells and look for fraying or bulges in pipes or belts. Also, get a vehicle service manual. They’re available at most auto parts stores or your dealership.

• Clean the car carefully inside and out. This not only helps the car’s appearance but can prevent premature rust. Vacuuming the inside also prevents premature carpet wear from sand and grit.

• Buy a safe, reliable car. Buying a car with the latest safety equipment makes it more likely you’ll feel as safe in your aging car as a newer model.

The magazine recommends several cars that have the best shot at reaching the 200,000 mile mark and a few that, according to its data, aren’t likely to make it.

I know it works. My Ford Escort has 220,500 miles on it. It still works!

For those of you who have been reading my blog, you will notice that I seem to be focused on things that could be construed as negative. I can’t deny that I may be a little over the top. Just ask my wife. That being said, I still believe it is important to let you know what is going on with the current economy. I suppose I would rather endorse a safe and not sorry stance.

The current economy has become a maze to navigate and understand. The US consumer accounts for 2/3rds of economic activity in the US and cannot be underestimated in terms of importance. If the American consumer does not spend, then the rest of the world catches a cold. In fact, American’s constant spending binge has kept many other countries economically healthy as the U.S. has sought to purchase other countries goods while America has exported its jobs.

Foreign countries recognize the challenge of controlling their own economy when so much depends on the US. Foreign nations have tried to invest in themselves and create their own consumption. But the greed factor has become great, as these countries became more advanced. Ironically they have became more tied to the U.S. financial structure than some would care to admit.

Global economies have enjoyed a fantastic run over the last several years and new wealth has been created, a vast majority of that wealth has found its way back into the U.S. financial markets, buying up everything from U.S. stocks to U.S. debt. (This is what I really believe has propped up the stock market.) Interest rates across the globe have remained low, leverage was used on both sides in order to borrow much more than was needed in order to squeeze out a few more dollars on investments paying more interest than the interest owed.

We are now dealing with a massive credit crunch taking place in the U.S., means no more borrowing at a low rates to invest at a higher rate. This has put a kibosh on the easy money. The implications are significant and will be felt not just here in the US but across the world. We are starting to see just a few effects in the stock market.