MYTHS AND REALITIES ABOUT THE ALTERNATIVE MINIMUM TAX

The Alternative Minimum Tax was created in 1969 to ensure that the highest-income households could not exploit loopholes, exclusions, and deductions to avoid paying any federal income tax.  The AMT acts as a stop-gap tax system, with taxpayers owing their regular income tax or AMT liability, whichever is higher.

Because the AMT parameters were never indexed for inflation, and because the 2001 and 2003 tax cuts substantially lowered taxpayers’ liability under the regular income tax without changing the structure of the AMT, the tax will affect a rapidly increasing number of taxpayers in future years in the unlikely event that no changes are made.  As a result, there is considerable anxiety surrounding the AMT, and some in Congress are eager to do away with it altogether.  Repealing the AMT, however, would cost at least $800 billion over the next decade (2008-2017), and as much as $1.5 trillion, depending on whether the 2001 and 2003 tax cuts are extended (according to estimates by the Urban Institute-Brookings Institution Tax Policy Center).  Repeal of the AMT would cost more than repeal of the estate tax.

Public discussion of issues surrounding the AMT suffers from several misconceptions, which seem to be widespread among policymakers and many media outlets.

Myth 1:
The AMT is (or is rapidly becoming) a “middle-class” tax

Myth 2:
The growth in the AMT was unanticipated and accidental, and so the cost of repeal should not have to be offset.

Myth 3:
The only way to protect middle-class households from the AMT is to repeal it

 
Center on Budget and Policy Priorities
820 1st Street, NE, #510
Washington, DC 20002
Ph: 202-408-1080
Fax: 202-408-1056
[email protected]
Contact the web team with questions
or comments about the site