NCPA - National Center for Policy Analysis

Ranks Of Alternative Minimum Tax Payers Will Swell

March 9, 2001

Congress enacted the first minimum income tax in 1969, when it was found that 155 individual Americans with adjusted gross incomes above $200,000 legally paid no federal income tax in 1966 because of various credits and deductions Congress itself had enacted.

Since then, this minimum tax evolved into the Alternative Minimum Tax (AMT), which operates as a separate tax system parallel to the regular individual income tax system but with different rules for determining taxable income, different tax rates for computing tax liability, and different rules for allowing the use of tax credits. Beyond certain thresholds, taxpayers' must calculate their liability using both the income tax and AMT -- whichever liability is higher, they pay.

Thus AMT taxpayers will not benefit from reductions in income tax rates.

According to the General Accounting Office:

  • The AMT affected about 1.3 million taxpayers in 2000 and accounted for about $5.8 billion in additional tax revenue
  • But by 2010, 17 million taxpayers, or one out of six, will have higher tax liabilities due the AMT -- including many middle-income taxpayers.
  • Over 10 years, the AMT will yield about $189 billion in tax revenues.

Most of the projected increase in AMT coverage is due to inflation; while the regular tax system is indexed for inflation, the AMT is not. Also, legislation temporarily excluding some tax credits from AMT rules will expire.

The AMT's impacts include increased taxpayer compliance burden; increased IRS administrative cost; redistribution of the tax burden among taxpayers; and changed economic incentives.

Source: James R. White, (director of tax administration and justice, GAO), "Alternative Minimum Tax: Overview of Its Rationale and Impact on Individual Taxpayers," testimony before the Senate Committee on Finance, GAO-01-500T, March 8, General Accounting Office, Washington, D.C.

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