NCPA - National Center for Policy Analysis

AMT - A Miserable Tax

August 27, 2001

For the second year in a row, the Internal Revenue Service's National Taxpayer Advocate has called for repeal of the Alternative Minimum Tax (AMT). The AMT is a second income tax system. You must pay either the regular income tax or the AMT, whichever is larger.

The IRS's Taxpayer Advocate deplores the AMT's "complex and burdensome calculations" and warns that it is poised to strike millions of additional taxpayers, mostly with middle-class incomes.

  • Unless the law is changed, over 17 million taxpayers will be subject to the AMT by the year 2010.
  • By that year taxpayers with an adjusted gross income of less than $100,000 will pay 60 percent of the AMT.
  • In 1998 alone, the number of individual taxpayers owing the AMT jumped 38 percent, from about 620,000 to 850,000.

Why is the number of AMT taxpayers soaring?

  • The AMT disallows personal exemptions, which means large families whose regular income tax is reduced by many personal exemptions are more likely to be caught by the AMT.
  • The AMT disallows the standard deduction and allows no deduction for state and local taxes; consequently, it treats these deductions as tax loopholes, making it one of the factors most likely to push people into the AMT.
  • Furthermore, unlike the regular income tax, the AMT is not indexed for inflation, so even if their incomes only keep pace with inflation, taxpayers can fall under its provisions.

Even more taxpayers must go through arduous AMT calculations to be sure they do not owe the tax. And due to the peculiar nature of the AMT, this year's tax cut could throw millions more into the AMT.

Source: Michael Schuyler, "Time to Repeal A Miserable Tax - the AMT," IRET Congressional Advisory No. 111, February 21, 2001, Institute for Research on the Economics of Taxation, 1730 K Street N.W., Suite 910, Washington, D.C. 20006, (202) 463-1400.


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