Probably the most common response to what is one of the more complex and out-of-control parts of our federal income tax would be the alternative minimum tax or AMT. The "AMT Patch" which keeps about 21 million individuals from paying AMT - people who AMT was never intended to affect, expired at December 31, 2011. Who knows when Congress will extend it - it likely won't be until after the November 2012 election. So, many individuals will be paying estimated taxes this year that include AMT.
A lot has been written about the AMT (including by me - my 2007 op ed - "Simplicity and transparency versus the
dread AMT, Silicon Valley/San Jose
Business Journal is still relevant in 2012!). I'd like to share two items:
1. The modern AMT stems from the Tax Reform Act of 1986. The Blue Book to TRA86 (page 473) states that for 1991, the AMT for individuals was projected to raise $334 million.* The year is relevant because by then new provisions of the TRA'86 would be fully phased in (revenue estimates were higher for 1987 to 1990 probably due to fact that passive activity loss limitations (Section 469) and repeal of personal interest deduction (Section 163(h)) were being phased in for regular tax, but fully in effect for AMT) Using an inflation calculator from the US Bureau of Labor Statistics, that one year revenue estimate would be $551 million in 2011. YET - just to enact a "patch" - which does not repeal the AMT, it just helps adjust the exemption amount for the effects of inflation, costs $64 billion for a year! Clearly, the AMT is way beyond being out of control.
2. The National Taxpayer Advocate's Report to Congress for 2008 (released 12/31/08) included a blunt observation about the AMT:
"Today, we have reached a point where even one-year fixes are extremely expensive [$64 billion] – and the perniciousness and invasiveness of the AMT is demonstrated by the fact that it will cost more in 2009 to repeal the AMT than it would cost to repeal the regular income tax rules and leave the AMT in place. Absent continual one year patches, almost a quarter of all individual taxpayers will have to navigate the AMT. That is a sad statement about the complexity of our tax system, and that fact alone should compel the new administration and Congress to undertake the fundamental tax reform necessary to repeal the AMT. It is simply inexcusable for a tax system to impose this kind of burden on millions of taxpayers." (page vii of the report)
The National Taxpayer Advocate's 2011 report to Congress continues to call for repeal of the AMT (2011 report, page 468).
* For a link to the JCT Blue Book and an article of things to consider upon the 25th Anniversary of the TRA'86 (that anniversary was October 22, 2011), see my short article here (and see the "table" link) in the article.
Repeal of the AMT has many supporters besides the National Taxpayer Advocate - also many members of Congress, the Joint Committee on Taxation and the Tax Sections of the AICPA and ABA.
What do you think it will take for the AMT to be repealed? Or should it be kept and the regular tax repealed for individuals?
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The AMT was enacted to address the tax shelter industry but it has become a monster out of control, especially when it became completely unneeded after TRA 1986. But this is the typical Congressional result when laws are enacted without any logic or sense and none are repealed for the same reason. Now our federal government is like a junky in need of the AMT fix. Let's face it, to repeal the AMT tax rates would have to go up. And there is not one Republican that wants to do that. End of story!
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