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1 (September 17, 2004)

handle is hein.crs/crsuntaajqm0001 and id is 1 raw text is: Order Code RS21817 September 17, 2004 CRS Report for Congress Received through the CRS Web The Alternative Minimum Tax (AMT): Income Entry Points and Take Back Effects Gregg Esenwein Specialist in Public Finance Government and Finance Division Summary The alternative minimum tax for individuals (AMT) was originally enacted to ensure that high-income taxpayers paid a fair share of the federal income tax.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 amounts are scheduled to expire at the end of 2004. If this occurs, then the number of taxpayers subject to the AMT will jump from 3 million in 2004 to over 16 million in 2005. Families with large numbers of children will be especially hard hit. For example, if the temporary increase in the AMT exemption expires, then in 2005, married couples with four children will be subject to the AMT when their incomes exceed approximately $58,500. In addition, if left unchanged, the AMT will take back much of the recently enacted reductions in the regular income tax. For instance, in 2008, a family of four with $80,000 of income will see $1,585 of regular income tax reductions taken back by the AMT. Fixing the AMT will be expensive. Assuming the recent reductions in the regular individual income are extended past 2010, repeal of the AMT would reduce federal tax revenues by over $1 trillion between 2005 and 2014. Projections indicate that by 2013 it would be less expensive to repeal the regular income tax than to repeal the AMT. Congress is considering going to conference on a child tax credit refundability bill (H.R. 1308) that was passed last year, and using the conference agreement as a vehicle for extending several expiring tax reductions. A temporary extension of the AMT exemption increase is likely to be included in this legislation. This report will be updated as legislative action warrants. The alternative minimum tax for individuals (AMT) was originally designed to prevent a small number of high-income taxpayers from escaping their fair share of Congressional Research Service ** The Library of Congress

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