Alternative Minimum Tax

The Alternative Minimum Tax (AMT) was introduced by the Tax Reform Act of 1969, and took effect in 1970. It was originally intended to target very high incomes which were subject to many exemptions under the tax code and to insure that taxpayers with large incomes paid some tax. In recent years, due to indexing and inflation, millions more of American taxpayers are becoming subject to the AMT.

In 2006, 3.8 million taxpayers were expected to be subject to the Alternative Minimum Tax. By 2007, the figure is projected to balloon to 23 million--nearly one in six workers. [1]

The 110th Congress is considering ways to alleviate the tax burden originally intended for "the rich," but more and more Americans of average and moderate income are being caught up. Unlike personal income tax, the AMT rates are not indexed for inflation. In the past, in response to demands from the electorate, the Congress often placed the burden of taxation on "the rich," and did not grant protection from inflation by indexing.

The Joint Committee on Taxation now reports that indexing the AMT tax rates would explode the deficit by $370 billion over the next several years. [2] The Center on Budget and Policy Priorities states repealing the AMT, without other tax increases to make up the shortfall, would add $1.2 trillion to the deficit, and widening over the next decade, with deficits as far as the eye can see. [3] To put that in perspective, total revenues to the U.S Government in FY 2006 were $2.4 trillion.