The recently passed tax bill affects the Alternative Minimum Tax (AMT). The AMT is like a parallel tax system. You calculate your taxes under the normal tax system and again under the AMT. Whichever one yields a higher tax, that's the one you pay.

The higher incomes go, the more people get pushed above the AMT threshold. Furthermore, any tax cuts that cause one's normal tax liability to fall can trigger an AMT liability.

• Absent any change in law, the number of taxpayers who will be forced to pay the AMT would have risen from 1.5 million this year to 17.5 million in 2010 (see figure).

• However, ironically, the just-passed tax cut will actually INCREASE the number of people affected by the AMT in 2010 to 35.5 million.

Because of the tax cut, more taxpayers will have a lower tax liability in the future, hence more face an AMT liability.

To help alleviate this added tax burden, Congress increased the AMT exemption level by $2,000 for singles and $4,000 for couples. Basically, this keeps the number of people affected by the AMT from rising through 2004.

The higher AMT exemption sunsets in 2004. Thus, unless further action is taken, the number of taxpayers affected by the AMT will jump from 5.3 million in 2004 to 13 million in 2005.

• In fact, in order to get around wacky budget rules, all tax cuts in the current legislation end on December 31, 2010.

• Therefore, there will be a massive tax increase on January 1, 2011 unless further legislation is passed.

• Thus, neither party will be able to avoid passing additional tax cuts, if only to prevent de facto tax increases from occurring.

This will create opportunities to for tax cutters in coming years regardless of what happens in future elections.

Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, June 4, 2001.

For text http://www.ncpa.org/oped/bartlett/bartlett01.html