NCPA - National Center for Policy Analysis

Here Comes the Alternative Minimum Tax

December 18, 2003

The alternative minimum tax is hitting growing numbers of Americans. It is the most serious problem encountered by taxpayers, according to a report by Nina E. Olson, the IRS National Taxpayer Advocate

The alternative minimum tax is a highly complex, separate system for calculating your taxes. It was designed to prevent a small number of high-income Americans from completely avoiding federal income taxes. But its calculation wasn't indexed for inflation. Unless Congress overhauls the law, the tax's growth over the next decade will be explosive.

  • About 3.3 million taxpayers will owe additional taxes next year because of the AMT -- up 27 percent from this year -- and more than triple the number in 1998, according to new Treasury Department statistics.
  • Among taxpayers most likely to be affected are people with large families in high-tax areas, such as California, New York City and Washington, D.C.
  • The problem will grow after 2004 -- 12.3 million filers will be hit in 2005, 15.3 million in 2006, 24.6 million in 2008 -- and 31.2 million in 2010.

Thus, if Congress doesn't overhaul current law, nearly 30 percent of all taxpayers with some positive individual income-tax liability will be hit by the AMT in 2010.

A 2001 Joint Committee on Taxation staff report offered a simple fix: Eliminate the AMT, both for individuals and for corporations.

Source: Tom Herman, "Minimum Tax Ensnares More People Each Year," Tax Report, Wall Street Journal, December 18, 2003.


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