the alternative minimum tax is poised to harm many including library directors. someting neds to be done with librarian salaries and or the income tax system in the usa

1. The Federal Alternative Minimum Tax
and
The Library Director’s Salary In
New Jersey
Beatrice Priestly, Monmouth University
Long Branch Public Library

2. The AMT and the Library
Director’s Salary
• The federal AMT tax is destined to have severe effects in
the Library Directors salary.
• A proposal is made for 2 additional possible salaries for the
Director.
• Spreadsheets showing of the effects of the AMT tax on
several salary possibilities was done..
• An examination of annual payroll deductions and typical
monthly expenses shows little is left of the paycheck each
month.

4. A Look at the AMT
 In 1969, the Department of the Treasury head Secretary Joseph W.
Barr addressed Congress and in his report he relayed that 155 individual
taxpayers with incomes above $200,000 did not pay any federal income tax
on their income tax returns for 1967
 Later the Alternative Minimum Tax (AMT) was created to apply to
high income households; however, when the 1981 tax cuts were passed
that established a method for indexing the regular income tax for inflation,
Congress neglected to take this opportunity to index the AMT for inflation
as well.
 The AMT was more of a progressive tax originally but this feature
is declining as ordinary middle class families can become ensnared
(Burman, 2002).

6. A Look at Salaries
 If one views the New Jersey Library Association Recommended Minimum
Starting Salary Guide as posted on the www.njla.org web site (under
publications) one can analyze by take home pay after standard payroll
deductions are made from the individual’s paycheck .
 There is very little difference in the take home pay of the Principal
Librarian ($63,755) and the Director ($86,414), considering the importance of
the job duty not to mention the meeting of basic living needs. The difference is
largely eliminated due to income tax effects.
 By exploring the ramifications of two other possible proposed director’s
salaries ($113,000), which would be a distinct possibility if movement is made
ever so incrementally; and ($175,000) which would be more on par with
director’s salaries at other executive levels in businesses, then one would start
to see some improvement in take home pay and discretionary funds.

7. Proposed Director’s Salaries
• The incremental salary
change to $113,000
can be easily justified.
• The step up to an
executive level pay of
$175,000 could also
be logically explained.

8. Where Does the Money Go?
You work hard You get paid
You pay taxes
Is anything left for the
household budget or
savings?

9. AMT Calculations In General
• To figure the AMT amount, one would figure the basic taxable income
which is the adjusted gross income (minus the itemized deductions and
individual exemptions);
• Then add back in certain tax adjustments (including many of the itemized
deductions and the personal exemptions) to get the total;
• Then one would be able to subtract the proper AMT Exemption amount
(and for the examples here the single exemptions of $42,500 for 2006 was
used; however, the AMT exemption amount for married couples is $62,500 for
2006.); this gives the AMTI or the alternative minimum tax income upon
which one would figure a two tier tax rate
• For Tax Year 2006 the two tier tax rate was of 26% for the first $112,000
and then 28% the amount over that for singles. This provides one with the
AMT tax amount.
• From this one would subtract the regular tax rate and if the difference is 0
or more then add that amount back to the regular tax amount for the income
(taken from the 1040 instructions booklet Tax Rate Tables) that will determine
the tax responsibility for the year (CCH Federal Income Tax 2006).

10. AMT Calculations for the 4
Discussed Salaries
 For the 63,755 Principal Librarian the tax to pay for federal income
tax would be about : $8,850.
 For the current Director being paid $86,414 the Federal income
tax to pay would be about: $15,412.
 For the Director at the incremental salary increase of $113,000 the
Federal tax burden would be about: $23,908.
 For the Director at the step up salary of $ 175,000 the federal tax
amount would be about: $42,26910

12. A Word About New Jersey Expenses
• I would be remiss if I did not add a note about NJ expenses NJ is one
of the most expensive state to live in the USA.
• In 2002 portion of NJ incomes that went to pay tax 34.3 percent
between Local Property taxes, NJ State Income Taxes, and Federal
Income Taxes according to State Rankings 2003. (O’Leary and
Morgan, 2003)
• In an article written for the Newark Star Ledger, Robert Gebeloff
wrote the NJ residents pay the nation’s highest per capita property tax.
In a typical town Roselle he reports the rate as $7,100. He goes on to
state that the tax is even higher than that in 136 other NJ towns.
(Gebeloff, 2006)

13. If New Jersey Library Director’s
Salaries Do not change Soon…
Then efforts will have to be directed
to change to federal income tax
system

15. Suggestions to fix the tax code:
• Tax Capital Gains at closer to ordinary income rates. This seems fair
• Keep the AMTI tax adjustments that are added back in for everyone in order to
compute the AMT Income. This makes sense to be sure everyone pays their
fair share of income tax.
• The basic AMT Exemption of 42,500 for singles needs to be increased to
70,000 and changed to 150,000 for married couples. This amount should be
indexed for inflation.
• Phase-out at the 500,000 income level amount should be eliminated. Persons at
these incomes and above should also fall under AMT rules and regulations.
This excess earner can pay the tax and still live a good life.
• Use only one calculation, the AMT calculation. Once a persons income level
became effected by AMT regulations and rules then they should dispense with
the regular tax computation and use only the AMT calculations.

16. Be a tiger

17. References
• Burman, L.E. (2002), “The Individual AMT Problems and Potential Solutions.” National Tax Journal, V55, N3 ppp
555-95.
• Butrica, B.A. (2006). “The Implicit Tax on Work at Older Ages.” National Tax Journal, V. 59 N. 2 pp. 211-234.
• CCH Federal Income T ax (2006) “CCH Federal Income tax”, Chapter 9.
• Gebeloff, R. (2006), “ Why Some Property Tax Bills Are No bargai.,”
Newark Star Ledger, avaiable as www.nj.com/news/ledger
 Hughes Robert J. (2007)”Giving Back: Charities Boost Pay to Lure Talent.”. Wall Street Journal. Eastern Edition
March 9, 2007 PW2
 Internal Revenue Service. www.irs.gov
 New Jersey Library Association available at www.njla.org
• O’Leary Morgan, K. (Ed.) (2003) “State Rankings 2003: A Statistical view of the 50 United States.” Morgan Quinto
press, lawrence, Ks.
• Priestly, Beatrice (2007) “The Federal Alternative Tax and the Library Director’s Salary in New Jersey.” The Bottom
Line: Managing Library Finances., v20 n1 pp.10-19.
• Salaries.com