NCPA - National Center for Policy Analysis

Alternative Minimum Tax Set to Bite 33 Million Taxpayers

July 1, 2003

Democrats and Republicans agree that the alternative minimum tax is a creeping menace that is going to drive up millions of Americans' tax bills.

So what is Congress doing about it? Not much. Lawmakers had a chance when they passed President Bush's big tax-cut bill in May, but they only tinkered with the Alternative Minimum Tax (AMT). At the moment, there is no clear plan for dealing with the issue.

Originally conceived in the late 1960s amid public outrage over news that 155 wealthy citizens used tax shelters to escape paying any federal income taxes, the alternative minimum tax today is whacking an increasingly wide swath of the middle class -- and most people who stand in its path don't know they are about to get hit.

The AMT is a surcharge that kicks in when a filer's regular tax rate falls below a certain level due to deductions. It was intended to impose a minimum levy -- no matter what -- on superrich Americans who game the tax code with aggressive income shelters.

But the alternative minimum was never indexed for inflation, so it is starting to nip people it wasn't intended to reach.

  • About 2.4 million taxpayers will be subject to the AMT in 2003.
  • The Tax Policy Center reports that by 2010, households with incomes less than $100,000 will constitute 51 percent of AMT payers.
  • Almost all couples with two children and incomes between $75,000 and $100,000 will pay the AMT.

If this tax had been indexed for inflation in 1985, when the regular income tax was indexed, and taxes hadn't been cut in 2001, the projected number of AMT payers in 2010 would be 268,000, not 33 million.

Source: Shailagh Murray, "Firestorm Looms On Minimum Tax: About 33 Million People Will Pay Levy in 2010 Unless Congress Acts," Wall Street Journal, July 1, 2003.

For text (WSJ subscription required)

http://online.wsj.com/article/0,,SB105701842396878700,00.html

 

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