The alternative minimum tax (AMT), which was originally intended to ensure that the wealthiest Americans pay at least some tax regardless of how many tax breaks they could otherwise claim, will affect 17 percent of taxpayers in 2007, rising to 23 percent of taxpayers in 2010. This is partially because President Bush's tax cuts were not accompanied by adjustments to the AMT and also partially because the exemptions that keep the AMT from applying to most people have not kept pace with inflation. A new analysis from Citizens for Tax Justice shows that there is a way to adjust the AMT -- without increasing deficits -- to ensure that the majority of it is paid by the richest one percent of taxpayers.
Many Democrats have expressed an interest in changing the AMT in the next Congress. Several lawmakers have expressed alarm that a significant number of voters will suddenly have to pay a tax that never applied to them before if Congress does not act. The problem is that the AMT is expected to bring in $250 billion in revenue in the next four years, so repealing it altogether would be outrageously irresponsible. The solution offered by CTJ allows for the same amount of AMT to be collected and also ensures that the tax will serve its original purpose -- to guarantee that the very wealthiest pay their fair share.
Senate Finance Committee Leaders Propose Repealing the AMT at a Cost of Hundreds of Billions
It would be comforting to believe that the Democrats who are now running Congress don't need to be convinced to support tax fairness. It would be comforting, but not entirely right. Senator Max Baucus (D-MT), the new chairman of the Senate Finance Committee, has joined forces with the now-ranking member Charles Grassley (R-IA) to again propose fully repealing the Alternative Minimum Tax (AMT). The Center on Budget and Policy Priorities finds that full repeal, if not offset by other revenue, could cost $790 billion over ten years and even more if the Bush tax cuts are extended past their expiration date in 2011.
It's true that if Congress doesn't do something, the AMT, which was originally intended to ensure that the wealthiest Americans pay at least some tax, will start applying to people it was never intended to affect. This is partially because President Bush's tax cuts were not accompanied by adjustments to the AMT and also partially because the exemptions that keep the AMT from applying to most people have not kept pace with inflation. But the solution to this problem is to reform the AMT in a way that is budget-neutral and concentrates the costs among the very wealthiest households, who were the targets of the AMT in the first place. Citizens for Tax Justice has proposed such a solution (see above), which is both budget-neutral and progressive.