NCPA - National Center for Policy Analysis

Alternative Minimum Tax Will Cancel Bush Cuts for Many Families

September 19, 2002

As President Bush's tax cuts of 2001 phase in over the next few years, the tax relief many middle- and upper-income families were anticipating will be offset by the alternative minimum tax. That is the warning contained in a new study from the Urban Institute-Brookings Institution Tax Policy Center.

The alternative minimum tax (AMT) was originally designed to assure that wealthier Americans with many deductions did not escape paying taxes of some sort, and as recently as three years ago fewer than one million Americans were subject to it. But if nothing is changed, by 2010 about 36 million taxpayers will face its complex provisions.

  • When the Bush cuts become fully effective, 85 percent of taxpayers with two or more children will be forced off the regular income tax and onto the AMT system.
  • It will largely affect families with incomes of $75,000 to $500,000.
  • Under AMT, many deductions are denied -- including those for children, the taxpayers themselves, and for state and local taxes.
  • Married couples are 25 to 30 times more likely to be subjected to it than single people -- which tax experts call "a nasty marriage penalty."

The study concludes that almost any remedy to the problem will cost the Treasury hundreds of billions of dollars or require raising taxes elsewhere to compensate for the losses.

Although the White House is reportedly aware of the problem, no action is expected anytime soon.

Source: David Cay Johnston, "Study Says Middle Class to Lose Much of Bush Tax Cut's Benefits," New York Times, September 19, 2002; Leonard E. Burman, William G. Gale, Jeffrey Rohaly and Benjamin Harris, "The Individual AMT: Problems and Potential Solutions," September 18, 2002, Urban-Brookings Tax Policy Center.


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