The Potential Distributional Effects of the Alternative Minimum Tax

Publication Date: July 2005

Publisher: Library of Congress. Congressional Research Service

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Research Area: Banking and finance

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Abstract:

The alternative minimum tax for individuals (AMT) was originally enacted to ensure that high-income taxpayers paid a fair share of the federal income tax. However, the lack of indexation of the AMT coupled with the recent reductions in regular income taxes has greatly expanded the potential impact of this tax. Temporary increases in the AMT exemption are scheduled to expire at the end of 2005. If this occurs, then certain taxpayers will be more adversely affected than others. In general, married taxpayers filing joint returns will be more adversely affected than single taxpayers. In addition, taxpayers with large families will be more adversely affected than taxpayers with small families. In terms of income, the largest increase in taxpayers subject to the AMT will occur over adjusted gross income (AGI) ranges of $100,000 to $500,000. Taxpayers with AGIs between $50,000 and $100,000 will eventually be affected, with the negative effects of the AMT growing substantially over time. Taxpayers with AGIs above $500,000 will not be significantly affected by the expiration of the higher AMT exemption. This report will be updated as legislative action warrants or as new data become available.