The Alternative Minimum Tax for Individuals: Legislative Initiatives and Their Revenue Effects

Publication Date: November 2005

Publisher: Library of Congress. Congressional Research Service

Author(s):

Research Area: Banking and finance

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Abstract:

The alternative minimum tax (AMT) for individuals was originally enacted to ensure that all taxpayers, especially high-income taxpayers, paid at least a minimum amount of federal taxes. However, the AMT is not indexed for inflation, and this factor, combined with the recent reductions in the regular income tax, has greatly expanded the potential impact of the AMT.

Temporary provisions intended to mitigate the effects of the AMT expire at the end of 2005. If this occurs, then the number of taxpayers subject to the AMT will increase from 3 million in 2004 to 21 million in 2006. The Congressional Budget Office estimates that extending and indexing the 2006 AMT parameters would reduce federal revenue by $191 billion over the next five years.

The conference agreement on the 2006 budget resolution, H.Con.Res. 95, contained $106 billion in tax relief over the next five years, approximately $70 billion of which would be protected through the reconciliation process. Under reconciliation, $11 billion of tax relief is allocated for 2006. On November 16, 2005, the Senate Finance Committee approved a tax cut reconciliation plan -- the Tax Relief Act of 2005 (S. 2020) -- that would, among other things, extend AMT tax relief through 2006. The full Senate approved S. 2020 on November 18. On November 15, the Ways and Means Committee approved H.R. 4297 which, among other things, would provide partial AMT relief through a one-year extension of the treatment of nonrefundable personal tax credits under the AMT.

In addition, 15 stand-alone bills modifying the AMT have been introduced in the 109th Congress. The Administration did not include modifications to the AMT in its FY2006 budget proposal. This report will be updated as legislative action warrants.