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The Individual Alternative Minimum TaxHistorical Data and ProjectionsThe nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthy of public consideration. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders. Note: This report is available in its entirety in the Portable Document Format (PDF). The text below is a portion of the complete document. The individual alternative minimum tax (AMT) was originally enacted in 1969 to guarantee that high-income individuals paid at least a minimal amount of tax.1 Due to design flaw, however, the AMT threatens to grow from a footnote in the tax code to a major component affecting tens of millions of taxpayers every year. One reason for the projected 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 individual income tax cuts enacted since 2001 exacerbate the problems of the alternative minimum tax. Absent a change in law, more than 30 million taxpayers will become subject to the AMT by 2010. The problem will abate somewhat if the tax cuts expire on schedule in 2011, but the upward trend will continue immediately thereafter. By 2017, about 39 million taxpayers will be subject to the AMT under current law, and almost 53 million if the tax cuts are extended. Though most lower- and middle-income taxpayers will remain unaffected by the tax, the explosive growth of the AMT from a tax affecting only 20,000 taxpayers in 1970 to one affecting 39 million or more in 2017 demands attention. The Tax Policy Center has written extensively about the AMT.2 This document presents and discusses updated estimates of AMT participation, revenue, and the distribution of AMT liability.3 It starts with a brief overview of how the AMT works. Notes from this section of the report Leiserson is a research assistant, and Rohaly is the director of tax modeling, for the Urban-Brookings Tax Policy Center. Views expressed are those of the authors alone and do not necessarily reflect the views of the Urban Institute, its board, or its funders. The authors thank Len Burman for helpful comments and suggestions. 1 The original minimum tax was an addition to regular income tax. The current AMT is a floor on total tax liability. 2 See, for example, Burman and Weiner (2005) and Burman, Gale, and Rohaly (2005). 3 Table source is the Urban-Brookings Tax Policy Center Microsimulation Model (version 1006-1). Estimates presented in this paper differ slightly from earlier projections primarily because of changes in the economic forecast included in the newest version of our tax model. Note: This report is available in its entirety in the Portable Document Format (PDF). |
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