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Author: NPR Marketplace

Published: September 19, 2002

It's a joyful experience plowing through one's tax return, hoping to reap the benefits of last year's big tax cut, only to find at the end that there's a catch -- it's called the Alternative Minimum Tax, originally designed to close tax loopholes for wealthy individuals. But a new report finds that tax could be erasing tax cuts for tens of millions of middle-class households. Marketplace's Amy Scott reports.

Scott: "By 2010, some 36 million, mostly middle-class Americans will pay the alternative minimum income tax. But what is the AMT?"

Anthony: "The truth is, it is so complicated that you can't really do it without computers."

Scott: "That's MSN tax columnist Joseph Anthony. He says the AMT was designed in the '60s after Congress discovered that 155 very rich people had escaped paying any taxes at all."

Anthony: "And, what has happened over the years is that, because of inflation and because of all the deductions in the tax code, more people have been captured by this alternative minimum tax system."

Scott: And, according to the report by the Brookings Institution and the Urban Institute, even more Americans will be pushed into paying more under the AMT by President Bush's tax cuts -- and they'll pay more. Because, according to one of the report's author's, Len Burman, under the AMT there are many exemptions you can't take -- like children.

Burman: "The Brady Bunch has $18,000 in exemptions they take against the regular income tax, and those aren't allowed against the AMT. So, even though the Brady bunch doesn't have much income, their exemptions are large enough to push their regular tax liability below the AMT liability."

Scott: "The consequence, says Burman, they'll have to pay about $1,000 more in tax.

Burman says to repeal the tax outright would be too expensive. And for now, those who would benefit would still be the fairly well-off. People who make between $100,000 and $500,000 a year. Rather, he suggests putting the 'alternative' back in the AMT by targeting those millionaires and billionaires.

In Washington, I'm Amy Scott for Marketplace."