Alternative Minimum Tax
November 24, 2014
January 3, 2013
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July 31, 2012
Revised May 12, 2012
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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. Thus there is bipartisan agreement on the need for changes in the AMT. Congress disagrees, however, on whether the tax should be repealed or reformed (and if so, how).