NCPA - National Center for Policy Analysis

Alternative Minimum Tax Misery

January 20, 2011

For many of the people whom President Obama calls "rich," the Bush tax cuts did not make much difference.  That's because of the Alternative Minimum Tax (AMT), which was created 40 years ago to foil rich tax dodgers but now doesn't affect people with income in the high six digits and above.  Instead, the AMT has become the bane of the middle- and upper-middle classes, especially those of us who live in high-cost, high-tax areas, says Allan Sloan, Fortune Magazine's senior editor-at-large.  

  • To Obama, all families with at least $250,000 of annual income and single taxpayers with $200,000 are "rich,"but to the AMT, many of them are prey.
  • This parallel tax, which allows fewer deductions than the regular tax, ensnares millions of taxpayers with incomes of $75,000 through $600,000.
  • There is no cost-of-living adjustment for this tax -- for example, according to CNNMoney's cost-of-living calculator, making $250,000 in New York City's Manhattan (that's "rich," by Obama's definition) is like making $110,000 in Manhattan, Kansas (not rich).

The Tax Policy Center says that three-quarters of taxpayers with incomes between $200,000 and $500,000 lost almost two-thirds of their Bush tax cut to the AMT.  Back in 2000, Bush tax techies admitted that 25 percent of Bush's cuts would be clawed back by the AMT.  That let Bush promise cuts with a stated value of $1.6 trillion while taking a budget hit of only $1.2 trillion, says Sloan.

Source: Allan Sloan, "Why the Bush Tax Cuts Overpromised and Underdelivered," Fortune Magazine, January 4, 2011.

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