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Expanding Reach of the Individual AMT

Three scholars at the Urban Institute have published a paper entitled "The Expanding Reach of the Individual AMT." It shows the harm done to a growing number of families by this stealth parallel tax system. It started out as a "soak the rich" scheme, but has evolved into much more than that. President Bush proudly points to his supposed tax cuts for all Americans. That would be a praise-worthy accomplishment of his adminstration except that he hasn't touched the AMT (Alternative Minimum Tax) system. Until this tax is eliminated, there will not be any real tax relief -- regardless what politicians are telling us. This paper has some good points, at least until page 13 when he starts accepting the Bush mantra of "revenue neutral reform." If you leave out this section, it's not too bad of a paper. Read further the abstract of the paper.
In January 1969, Treasury Secretary Joseph W. Barr informed Congress that 155 individual taxpayers with incomes exceeding $200,000 had paid no federal income tax in 1966. The news created a political firestorm. In 1969, members of Congress received more constituent letters about the 155 taxpayers than about the Vietnam war. Later that year, Congress created a minimum tax to prevent wealthy individuals from taking advantage of tax laws to eliminate their federal income tax liability. Both the original minimum tax and its successor, the individual alternative minimum tax (AMT), have applied in the past to a small minority of high-income households. But barring a change in law, this "class tax" will soon be a "mass tax." Current projections show the number of AMT taxpayers skyrocketing from one million in 1999 to almost 31 million in 2010. Without reform, virtually all upper-middle-class families with two or more children will be paying the AMT by decade's end. The AMT is notoriously complex, and its record on fairness and efficiency is mixed at best. But because of its widening reach, fixing the AMT will be expensive. By the end of the decade, repealing the AMT will cost more than repealing the regular income tax. This paper explains how a tax originally designed to target 155 taxpayers could grow to cover 31 million, discusses economic issues related to the alternative minimum tax, and examines options for reform.

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