The Bush Tax Cuts: How do the AMT and interest payments affect the cost?
Revenue estimates of the cost of the Bush tax cuts often understate their likely cost, since they make no long-term adjustment for limiting the pending expansion of the alternative minimum tax (AMT). As its reach gradually expands to cover more and more taxpayers, the AMT takes back an increasing share of the tax cuts, reducing their apparent cost. If the AMT exemption were indexed to inflation in 2008 and afterward, as opposed to reverting to its statutory levels of $45,000 for joint filers and $33,750 for single filers, the ten-year revenue loss from making the tax cuts permanent would increase from $1.9 trillion to $2.4 trillion, not counting the cost of additional debt service.
- There are various ways to estimate the cost of the Bush tax cuts, depending in particular on assumptions about whether the tax cuts will expire on schedule, whether the interest costs from additional borrowing are included, and what is done with the AMT. One comprehensive measure assumes the extension of the tax cuts enacted to date, assumes that the AMT exemption continues to be indexed to inflation, and includes the additional interest costs on the larger public debt. By this measure, the tax cuts reduce revenue between 2008 and 2017 by an estimated $1.9 trillion and increase the budget deficit over that period by $3.4 trillion. In 2017 alone, the revenue loss amounts to $421 billion, or almost 2 percent of projected GDP in that year.
