What is the rationale for Alternative Minimum Tax?
Why is it that many more people are subject to it now that were not intended to be subject to it before?
Does the AMT favor one group of taxpayers over another?
Are there any economic, social, revenue, or political implications?
Solution
1.)The rationale for establishing Alternative Minimum Tax (AMT) was to prevent 155 wealthy taxpayers from using deductions and credits to avoid paying any federal income taxes.
2.) While the Alternative Minimum Tax was originally created to target millionaires, today it falls most heavily on non-millionaires. Mainly due to the failure to index the AMT for inflation in 1981 when the regular income tax was indexed, the reach of the AMT has expanded over time to hit middle-income people it was never intended to tax. As a result, the AMT impacts a growing share of the population. According to the Congressional Budget Office, last tax season 4.5 million taxpayers were affected by the alternative minimum tax, an increase of over 4 million taxpayers since 1970.
3.)Perhaps the most widely-cited problem, however, is the threat the AMT presents to middle-class taxpayers. Whereas income tax brackets were permanently adjusted for inflation in 1981, the AMT never was
4.)The AMT is economically inefficient. The tax has proven ineffective
at its stated purpose: ensuring that high-earners pay some minimum amount in income taxes.
Political parties opposed it.
it reaches further into the middle class each year while inflation causes fewer and fewer Americans to fall
under the exemption threshold.
.
What is the rationale for Alternative Minimum Tax- Why is it that many.docx
1. What is the rationale for Alternative Minimum Tax?
Why is it that many more people are subject to it now that were not intended to be subject
to it before?
Does the AMT favor one group of taxpayers over another?
Are there any economic, social, revenue, or political implications?
Solution
1.)The rationale for establishing Alternative Minimum Tax (AMT) was to prevent 155 wealthy
taxpayers from using deductions and credits to avoid paying any federal income taxes.
2.) While the Alternative Minimum Tax was originally created to target millionaires, today it
falls most heavily on non-millionaires. Mainly due to the failure to index the AMT for inflation
in 1981 when the regular income tax was indexed, the reach of the AMT has expanded over time
to hit middle-income people it was never intended to tax. As a result, the AMT impacts a
growing share of the population. According to the Congressional Budget Office, last tax season
4.5 million taxpayers were affected by the alternative minimum tax, an increase of over 4 million
taxpayers since 1970.
3.)Perhaps the most widely-cited problem, however, is the threat the AMT presents to middle-
class taxpayers. Whereas income tax brackets were permanently adjusted for inflation in 1981,
the AMT never was
4.)The AMT is economically inefficient. The tax has proven ineffective
at its stated purpose: ensuring that high-earners pay some minimum amount in income taxes.
Political parties opposed it.
it reaches further into the middle class each year while inflation causes fewer and fewer
Americans to fall
under the exemption threshold.
