NCPA - National Center for Policy Analysis

Alternative Tax Hits Middle Class Taxpayers

April 29, 2002

The Tax Reform Act of 1969 instituted a minimum tax to ensure that all wealthy persons paid some income taxes, no matter how many legal deductions, exclusions and exemptions they might have. Within a few years, Congress had to pass further legislation to restrict tax loopholes it missed in 1969.

  • In 1967, 155 Americans with incomes above $200,000 paid no federal income taxes. Twenty-one of them had incomes above $1 million.
  • In 1977, the Treasury found 60 Americans falling into this category.
  • But by 1986, 659 wealthy Americans legally managed to avoid all income taxes.

Congress toughened the minimum tax -- now called the Alternative Minimum Tax (AMT) -- and required millions of Americans to calculate their taxes the normal way and again without many exemptions and deductions. People paid whichever was higher.

The threshold for the AMT was $40,000 for couples and the rate was a flat 20 percent. In 1987, only 140,000 actually owed AMT and the net revenue raised was just $1.7 billion.

  • In 1987, the number of Americans paying no income taxes rose to 857 and has risen more or less continuously since.
  • In 1998, the latest year available, 1,467 Americans with incomes above $200,000 paid no federal income taxes.

Meanwhile, the AMT threshold increased to $45,000 in 1990, but it should be closer to $65,000 just to keep pace with inflation.

By 2011, the number of those paying AMT will reach 16.4 million. Moreover, more than half of all AMT revenue will come from taxpayers with incomes below $200,000.

When Congress aims at the rich, it seems, the middle class are the ones who get hit.

Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, April 29, 2002.

 

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