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![handle is hein.taxfoundation/iretcgadv0108 and id is 1 raw text is: February 21, 2001 No. 111
Time To Repeal A serable
ax -
The AMT
For the second year in a row, the Internal
Revenue Service's National Taxpayer Advocate has
called for repeal of the Alternative Minimum Tax
(AMT) for individuals. The IRS's Taxpayer
Advocate deplores the AMT's complex and
burdensome calculations and
warns that although originally
aimed at the very wealthy, the The AMT
AMT now has a growing inaccurate
number of middle-income misdeinition
taxpayers in its sights. c i
(Internal Revenue Service, unpusted,
National Taxpayer Advocate's b reea
Annual Report To Congress,
FY 2000, accessed on the
Internet at www.irs.gov.)
The AMT has been a disaster from day one. It
is based on an inaccurate and unreasonable
misdefinition of income. It is a complicated,
arbitrary, wholly unjustified tax that should never
have been enacted. It should have been repealed
years ago.
Today, however, repeal of the AMT has taken
on even greater urgency as the tax is poised to
strike millions of additional taxpayers, mostly with
middle-class incomes. The number of individual
taxpayers owing the AMT jumped by 38% in 1998
IET
Congressioa
d sorA y sJ
larger. (The way
is
ind
based on an
unreasonable
of income. It is a
arbitrary, wholly
that should ... have
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this appears on tax forms is that
you must pay regular income
tax, prepare a separate
schedule computing the AMT,
and if the AMT exceeds
regular income tax, tack on
that extra amount to the check
you send Washington.)
The AMT was originally
enacted in 1969 following
reports that a few wealthy
people were obeying all laws but paying little or no
income tax. Mostly absent from the discussion was
an examination of why these people owed little
income tax. Income, properly measured, is receipts
minus the expenses incurred in generating income.
In many cases, people with low incomes, properly
measured, were falsely categorized as having high
incomes by arbitrarily ignoring legitimate income-
related expenses recognized by the regular income
tax.
In many other cases, people had low explicit
federal taxes because they derived much of their
Institute for
Research on the
Economics of
Taxation
alone (from about 620,000 to about 850,000). The
IRS Taxpayer Advocate projects that unless the law
is changed, Over 17 million taxpayers will be
subject to the Alternative Minimum Tax by the year
2010. [And by that year] taxpayers with an adjusted
gross income of less than $100,000 will owe 60%
of the nation's Alternative Minimum Tax...
Action is also imperative because it appears
likely that President Bush and Congress will
approve significant regular income tax relief this
year. Due to the peculiar nature of the AMT,
reducing regular income tax liabilities could throw
millions more taxpayers into the AMT unless there
is also AMT relief.
A Tax at Odds with Principles. The AMT is a
second income tax. In a heads-the-government-
wins-and-tails-you-lose game, you must pay either
the regular income tax or the AMT, whichever is
IRET is a non-profit, tax exempt 501(c)(3) economic policy research and educational organization devoted to informing the
public about policies that will promote economic growth and efficient operation of the free market economy.
1730 K Street, N.W., Suite 910, Washington, D.C. 20006
Voice 202-463-1400 * Fax 202-463-6199 0 Internet www.iret.org
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