NCPA - National Center for Policy Analysis


March 21, 2005

The Alternative Minimum Tax (AMT) once targeted the wealthiest of families but is now hitting the upper middle-class in states that vote Democrat, says Peronet Despeignes (Fortune).

The AMT works by imposing a flat 26 percent tax rate on the first $175,000 of income and 28 percent after that. By law, taxpayers pay either their regular taxes or the AMT, whichever is greater. But because it is not adjusted for inflation, the tax has begun to target the upper middle-class, particularly those in Democratic or "blue" states:

  • Already the tax has ensnared more than one million Americans and could hit a total of 30 million taxpayers by 2010.
  • According to the Urban Institute, the 11 states that already have the greatest share of taxpayers paying the AMT are blue states; toping the list is New York (23.1 percent of taxpayers), District of Columbia (15.8 percent) and New Jersey and California (both 15.6 percent).
  • Meanwhile, the bottom 10 states -- those that have the fewest percentage of taxpayers paying the AMT -- are red states; for instance, only 1 percent of taxpayers in Montana have to pay the AMT.

Over time, however, the red/blue divide will shrink. According to the Congressional Budget Office, as early as 2010, the AMT will hit 95 percent of all families with adjusted gross incomes of $100,000 to $200,000.

Source: Peronet Despeignes, "Bush to Blue States: Drop Dead?" Fortune, March 7, 2005.


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