NCPA - National Center for Policy Analysis

Soak The Rich Scheme Should be Repealed

April 14, 2003

The Alternative Minimum Tax (AMT) should be repealed, according to Bruce Bartlett. Initially imposed by liberals in 1969 as a "soak the rich" tax scheme, the AMT forces tax payers to calculate their income taxes twice: first under the regular income tax and again under the AMT. Whichever yields the higher tax is the one that must be paid.

Legitimate deductions, such as the personal exemption and payments for state and local taxes, are disallowed under the AMT, and incomes are taxed at either 26% or 28%. These rates are much higher than those of the regular income tax for most taxpayers.

The AMT has several flaws, Bartlett says:

  • Because of inflation and real economic growth, what constituted the "rich" in 1969 is now the middle class.
  • Today, the threshold for paying the AMT is $35,750 for singles and $49,000 for couples -- if your annual income is above these amounts, you are "rich" as far as the AMT is concerned.

Although the law has been adjusted over time, the threshold for paying the AMT has not kept pace with inflation, Bartlett explains:

  • The latest adjustment expires in 2004 -- after that, thresholds will fall to $45,000 for couples and $33,750 for singles.
  • It is estimated that the number of taxpayers owing taxes as a result of the AMT will rise from 2.6 million in 2002 to 36 million by 2010 under current law.
  • Remarkably, revenue from the AMT is expected to rise so rapidly that by 2008 it will cost more to repeal the AMT than to get rid of the regular income tax altogether.

In short, as a recent analysis put it, the AMT is moving from a "class tax" to a "mass tax" paid by most taxpayers.

Source: Bruce Bartlett, "Tax deserves to be repealed," USA Today, April 14, 2003.

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