Repealing the AMT: Costly and Regressive

January 5, 2007

Senators Baucus and Grassley have proposed to repeal the alternative minimum tax (AMT) in 2007. Repeal would reduce tax revenues by $70 billion in calendar year 2007 alone and $850 billion by fiscal year 2017 assuming that the Bush tax cuts expire after 2010 (see Table T07-0008). If the tax cuts are extended, the 11-year revenue loss nearly doubles to $1.6 trillion.

Benefits of AMT repeal would go almost entirely to taxpayers at the top of the income distribution. Nearly 96 percent of the tax cut would go to the top fifth and 80 percent would go to the top tenth (see Table T07-0007). More than half would go to taxpayers with income above $200,000 (see Table T07-0006). After-tax incomes of taxpayers with incomes between $200,000 and $500,000 would rise by 2.7 percent, or nearly $6,000.

Coupling repeal of the AMT with a combination of higher regular income tax rates and base-broadeners could undo both the revenue loss and the regressivity of repeal alone. The Tax Policy Center is currently developing various revenue-neutral options to repeal the AMT. Those options and an analysis of related issues will be posted on the TPC website when available.

For the revenue impact of repealing the AMT, both with and without extension of the Bush tax cuts, see T07-0008

For the distribution by quintiles and within the top ten percent, see T07-0007

For the distribution of benefits of repeal by dollar income classes, see T07-0006

For more background on the AMT, see:

• Burman, Leonard E., William G. Gale, and Jeff Rohaly. 2005. "The Expanding Reach of the Individual Alternative Minimum Tax." Washington DC: The Urban Institute and Brookings Institution (May).

• Burman, Leonard E., Julianna Koch, and Greg Leiserson. 2006. "The Individual Alternative Minimum Tax (AMT): 11 Key Facts and Projections." Washington DC: The Urban Institute (December).

• Leiserson, Greg, and Jeffrey Rohaly. 2006. "The Individual Alternative Minimum Tax: Historical Data and Projections." Washington DC: The Urban Institute. (November).