NCPA - National Center for Policy Analysis


December 6, 2006

The Alternative Minimum Tax (AMT) became law in 1969 after President Lyndon Baines Johnson's last Treasury Secretary, Joseph Barr, created a liberal uproar by disclosing that 21 millionaires had managed to pay little or no income tax in 1967.  Thus the "alternative" tax was designed to capture high earners who claimed a lot of deductions.  But this year it will strike four million Americans, and next year without a change in law it will snare 23 million -- one in four tax filers.

  • More telling for class warriors, next year a higher percentage of Americans with incomes between $50,000 and $100,000 will pay the AMT than will tax filers with incomes above $1 million a year.
  • The latest data indicate that the eight states with the highest percentage of tax filers subject to the AMT all voted heavily Democratic in 2004 and 2006 -- including Massachusetts, Connecticut, New Jersey and Rhode Island.
  • Those voters are now screaming for relief, and the question for Democrats is where they'll find the money; eliminating the AMT would cost about $50 billion for one year and $1.2 trillion over 10 years, according to the Treasury Department.

According to the Journal, the Treasury Department should consider some bipartisan tax reforms.  What Americans loathe about the AMT is that it first requires filers to comply with the regular IRS tax code with its hundreds of tax forms, work sheets and instructions.  But then if they qualify for too many deductions -- for state and local taxes, say, or the child credit -- they must double their pleasure by recalculating their income and filling out separate tax schedules for the AMT.  Then they pay whichever tax is higher.  It's really a Mandatory Maximum Tax, says the Journal.

Source: Editorial, "The AMT Reckoning," Wall Street Journal, December 6, 2006.

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