How much revenue does the AMT raise?
About $28 billion in 2015, or about 2.0 percent of all individual income tax revenue. By 2025, AMT revenue will total $44 billion, or 1.8 percent of all individual income tax revenue.
Congress enacted the original minimum tax in 1969. It was an “add-on” tax that households paid in addition to any regular income tax they owed. It applied to certain income items (“preferences”) that were taxed relatively lightly or not at all under the regular income tax. The largest preference item was the portion of capital gains excluded from the regular income tax. Revenue from the add-on tax grew from $122 million (0.14 percent of aggregate individual income tax revenue) in 1970 to $1.5 billion (0.84 percent) by 1978.
Congress enacted the modern individual alternative minimum tax (AMT) in 1979 to operate alongside the add-on minimum tax. The main preference items, including capital gains, moved from the add-on tax to the new AMT. As a result, revenue from the add-on tax plummeted to $300 million in 1979. Congress subsequently repealed the add-on tax, effective in 1983. Revenue from the new AMT climbed rapidly from $870 million (about 0.4 percent of all individual income tax revenue) in its inaugural year of 1979 to $6.7 billion (2.0 percent) in 1986.
The Tax Reform Act of 1986 (TRA) changed both the regular income tax and the AMT. The TRA eliminated much tax sheltering activity and thus shifted much of the AMT base to the regular income tax system. In particular, the TRA eliminated the partial exclusion of capital gains, which had accounted for 85 percent of total AMT preferences in 1985. As a result, AMT revenue fell to $1.7 billion in 1987, back to the same 0.4 percent of aggregate individual income tax revenue that it had raised in 1979.
Unlike the regular income tax system, Congress did not index the AMT for inflation. Each year, the standard deduction, personal exemptions, and tax bracket thresholds in the regular income tax would rise to keep pace with inflation. In contrast, the AMT exemption and brackets stayed fixed. Thus, over time, as a taxpayer’s income rose with inflation, AMT liability rose relative to regular income tax liability. Since taxpayers paid the larger of the two taxes, inflation pushed more people onto the AMT, and AMT revenue increased steadily after 1987.
In 2001, Congress passed the Economic Growth and Tax Relief Reconciliation Act (EGTRRA), which substantially reduced regular income taxes but provided only temporary relief from the AMT. Over the following decade, Congress repeatedly passed legislation—known as the AMT “patch”—to prevent an explosion in the number of AMT payers. Despite the annual patches, AMT revenue continued to grow, reaching $36.1 billion in 2012.
The American Taxpayer Relief Act of 2012 (ATRA) finally enacted a permanent AMT “fix” by establishing a higher AMT exemption, indexing the AMT parameters for inflation, and allowing certain tax credits under the AMT. Combined with the fact that ATRA raised regular income taxes on high-income taxpayers, the permanent AMT fix reduced AMT revenue to $25.6 billion in 2013.
In 2015, the AMT is expected to generate $28.2 billion, or about 2.0 percent of individual income tax revenue. Despite ATRA’s permanent fix to the AMT, real income growth over the coming decade will push more taxpayers into the income ranges hit by the tax. Thus, AMT revenue is projected to grow to $44 billion by 2025 (figure 2), even though the AMT’s share of total individual income tax revenue will remain roughly constant.
Urban-Brookings Tax Policy Center. “Microsimulation Model, version 0515-1.”
Burman, Leonard E. 2007. “The Alternative Minimum Tax: Assault on the Middle Class.” The Milken Institute Review, October.
———. 2007. “The Individual Alternative Minimum Tax: Testimony before the United States Senate Committee on Finance.” Washington, DC: Urban Institute.
Leiserson, Greg, and Jeff Rohaly. 2007. “What is Responsible for the Growth of the AMT?” Washington DC: Urban Institute.