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The Individual Alternative Minimum Tax: Historical Data and Projections, Updated October 2009

Katherine Lim, Jeff Rohaly

Published: October 05, 2009
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The text below is an excerpt from the complete document. Read the full report in PDF format.

Abstract

The alternative minimum tax (AMT), which originally targeted high-income taxpayers, requires annual legislation to prevent it from affecting millions of middle-income individuals each year. There are two primary reasons for the AMT's broadening impact; its parameters are not indexed for inflation and the 2001-2006 tax cuts reduced regular tax liability without changing AMT liability. In 2009, four million taxpayers will pay $33.5 billion in AMT, but without congressional action that number will rise to 27 million owing $102 billion in 2010. This paper describes the AMT and provides TPC's latest estimates of AMT coverage, revenue, and distribution.


Introduction

Congress originally enacted a minimum tax in 1969 to guarantee that high-income individuals paid at least a minimal amount of tax each year. Due to design flaws, however, the current alternative minimum tax (AMT) requires annual congressional action to prevent it from affecting tens of millions of taxpayers each year. One reason for the expansion of the AMT is that-unlike the regular income tax system-the AMT brackets and exemption are not indexed for inflation. In addition, the tax cuts passed during the Bush administration exacerbate the AMT problem because they reduce regular income taxes without a corresponding permanent reduction in the AMT. Absent another temporary fix or other change in law, the tax cuts and lack of indexation will combine to push more than 27 million taxpayers onto the AMT in 2010. If Congress extends the Bush tax cuts, that number would swell to almost 52 million by 2020. Alternatively, if Congress allows all of the tax cuts to expire-which is highly unlikely-the number of AMT taxpayers would fall dramatically in 2011, but then trend back upward over time to hit more than 37 million taxpayers by 2020. Regardless of how Congress deals with the coming expiration of the Bush tax cuts, policymakers will also need to address the explosive growth of the AMT from an obscure tax affecting only 20,000 filers in 1970 to one that could affect nearly a third of all taxpayers in 2010.

(End of excerpt. The entire report is available in PDF format.)