On Saturday, I had a piece in The American magazine about the increasing number of Americans subjected to the Alternative Minimum Tax (AMT). Here is a chart:
As we can see from this chart, between 1969 (when it was implemented to prevent 155 wealthy taxpayers from using deductions and credits to avoid paying any federal income taxes) and last year (when it affected 4.5 million taxpayers), the AMT’s reach has exploded. Things would get much worse, of course, if an AMT patch weren’t adopted every year. For instance, without the patch, the number of taxpayers subject to the AMT would have swelled from an estimated 4.5 million in 2009 to 27 million in 2010. This change would have affected one in six American taxpayers.
One interesting aspect of the AMT is who it affects the most: Since the AMT disallows certain tax breaks — especially state and local tax deductions and the personal exemption — it hits some taxpayers harder than others. Married couples with children and taxpayers in high-tax states are among those hit disproportionately, which explains why Democrats have been so eager to reform the AMT. About half of the people paying the tax in recent years live in one of four states — California, Massachusetts, New Jersey, and New York (which together account for almost a quarter of the nation’s population). This liberal tax hits liberal states really hard.
Ideally, the AMT problem would be addressed in the context of fundamental tax reform, such as adopting a flat tax. More likely, lawmakers will just keep patching away each year.
The whole thing is here.