Alternative Minimum Tax: How much revenue does the AMT raise?
In 1970, the original minimum tax collected only $122 million (about $671 million in 2009 dollars), representing just over one-tenth of one percent of all individual income tax revenue. Barring legislative action, in 2010 the current alternative minimum tax (AMT) will generate $102 billion or 10.4 percent of all individual income tax revenue. If the 2001-06 tax cuts are made permanent without a corresponding AMT fix, by 2019, the AMT will generate 13.1 percent of individual income tax revenue or $271 billion.
- The original minimum tax was an "add-on" tax that was paid in addition to regular individual income tax. It applied to certain income items—referred to as "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. The add-on tax grew rapidly from $122 million (0.14 percent of aggregate individual income tax revenue) in 1970 to $1.5 billion (0.84 percent) in 1978.
- Congress enacted the modern 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 AMT, causing revenue from the add-on tax to drop sharply to $300 million in 1979. Congress repealed the add-on tax, effective in 1983.
- AMT revenue climbed rapidly from $870 million (about 0.4 percent of aggregate income tax revenue) in 1979 to $6.7 billion (2 percent) in 1986.
- The Tax Reform Act (TRA) of 1986 made major changes to both the regular income tax and the AMT. The act eliminated much sheltering activity and thus eliminated a large part of the AMT tax base; if the regular income tax did not shelter income, that income did not fall prey to the AMT. In particular, TRA eliminated the partial exclusion of capital gains, which had accounted for 85 percent of AMT preferences in 1985. Consequently, AMT revenue dropped to $1.7 billion in 1987, back to the same 0.4 percent share of aggregate individual income tax revenue that obtained in 1979.
- AMT revenue steadily increased after 1987, primarily because, unlike the regular income tax, the AMT is not indexed for inflation. Over time, inflation causes AMT liability to rise relative to regular income tax liability. Since taxpayers effectively pay the larger of the two taxes, inflationary effects push more people onto the AMT over time.
- The 2001-06 tax cuts temporarily increased the AMT exemption and allowed certain non-refundable credits to be used regardless of AMT liability. Congress has successively extended those temporary features, referred to as the "patch," through 2011. Barring further Congressional action, AMT revenue and the number of tax-payers affected by the AMT will soar after that.
- In 2011, the last year with the patch in place, the AMT will raise an estimated $39 billion. Barring legislative action, that value will more than triple in 2012 to $132 billion, 11 percent of individual income tax revenue.
- The scheduled sunset after 2012 of all the temporary provisions enacted between 2001 and 2010 will cause AMT revenue to drop off sharply in 2013 to $56 billion or 4 percent of individual income tax revenues. Alternatively, if Congress makes the 2001-2010 tax cuts and other temporary provisions permanent without reforming the AMT, AMT revenue will continue to climb to nearly $400 billion in 2022, one-sixth of individual income tax revenue.