Another Update on the History of the AMT

The massive economic rescue package passed in October 2008 in response to the banking crisis included relief from the alternative minimum tax (AMT) for the 2008 tax year.* This is good news. If Congress had not passed this temporary patch, up to 25 million taxpayers would have been hit by the AMT. By one estimate, these taxpayers would have seen an average $2,000 increase in their tax liabilities. The patch limited the number of taxpayers who are subject to the AMT to about 4 million for the 2008 tax year.¹

The AMT was introduced in 1969 to target a very few wealthy individuals who were using loopholes to avoid paying income taxes. Because the AMT limits are not indexed for inflation in the same way that ordinary income taxes are, more middle-income taxpayers have fallen within the AMT’s clutches in recent years.

Congress has found it easier to deal with the issue of AMT liability on a year-to-year basis rather than repealing the tax permanently. This is primarily because losing AMT revenue would cause the projected budget deficit to increase by more than $1 trillion over the next decade.²

With each year that Congress avoids a permanent fix, the number of moderate-income taxpayers who could face a tax hike resulting from the AMT grows larger. In fact, it’s estimated that half of those earning between $75,000 and $100,000 — a group that could hardly be defined as wealthy — would possibly be subject to the AMT by 2010.³

The future of the AMT is nothing but uncertain. Therefore, it is important to consider the potential effect of the AMT on your tax liability in the coming years.

*The American Recovery and Reinvestment Act of 2009 (enacted on February 17, 2009) included a one-year AMT patch for the 2009 tax year. This will spare about 26 million middle-income taxpayers from the levy.⁴

1) USA Today, September 26, 2008
2) Los Angeles Times, October 5, 2008
3) Kiplinger’s Personal Finance, March 2007
4) CCH Tax Briefing, February 17, 2009