This content is provided by the Americans for Tax Reform Foundation.
Current Law & Expiration
The Alternative Minimum Tax (AMT) is a strict method of calculating the income tax. The “AMT tax base” uses a broad definition of income and disallows a number of tax credits, deductions, and exemptions. This base is taxed at rates of either 26% or 28% — if the resulting liability exceeds a filer’s ordinary income tax liability, then the filer is on the hook for the AMT amount.
The AMT was enacted in 1969 to soak a small group of 155 Americans who, according to politicians, were not paying Washington enough money in taxes. Its provisions were not indexed to inflation, however, so more taxpayers—inevitably, less wealthy taxpayers—were required to pay the AMT as time went on.
To address this issue, Congress “patched” the AMT in 2001 by increasing the exemption on the taxable income base. This temporary provision freed a sizeable number of middle-income filers from piles of paperwork, and, more importantly, kept the AMT from taking more of their money. The patch has been extended several times since then, most recently by the 2010 Tax Relief Act.
On Taxmageddon, the AMT patch will sunset. This will cause the exemption to nosedive by over 40%, from $74,450 to $45,000 for joint filers.
Like most tax proposals which claim to impact only the rich, the Alternative Minimum Tax has metastasized over time to ensnare middle-income Americans.
According to the left-leaning Center on Budget and Policy Priorities, 45% of AMT revenue in 2010 was taken from taxpayers making less than $200,000. By most reasonable standards—and even by the current administration’s arbitrarily high standard—these are not rich fat cats, and there is no justification for lassoing them into the AMT population.
Taxmageddon will exacerbate the problem, swelling the ranks of AMT-eligible taxpayers from four million to over thirty million, an eight-fold increase.
In 2010, “wealthy” AMT-paying households with incomes between $50,000 and $100,000 paid an average of $1,000 to the AMT. The newly-eligible class of AMT payers should expect a comparable tax bite.
The AMT will continue to expand through bracket creep unless the exemption amounts and other key facets are indexed for inflation. Congress should act to protect taxpayers from the AMT—better yet, they should abolish it altogether.
2013 Cost to Taxpayers
Budget of the President: $120 billion
10 Year Cost to Taxpayers
Budget of the President: $1.9 trillion