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The End of the Alternative Minimum Tax (AMT)

This article was written by in Taxes. 20 comments.


The Alternative Minimum Tax (AMT) is one section of the tax code everyone, regardless of political party affiliation, seems to hate. Originally designed to ensure the wealthiest Americans wouldn’t be able to avoid paying a fair share of tax, the AMT isn’t adjusted for inflation, so an increasing number of not-as-wealthy Americans are subject to higher tax bills.

Right now, politicians are concerned with the debt ceiling. Congress limits the amount of debt the federal government can owe, and this maximum must be raised every so often because essentially the economy runs on debt and relies on debt to operate. A special bipartisan team in Congress, the “Gang of Six,” now leads the charge in determining how to prevent disaster while keeping as many politicians in Washington as satisfied as possible.

If nothing is done about the debt ceiling, politicians and economists do claim there could be a financial disaster. While this has never happened in the past, and every time the subject has come up it has been resolved, experts speculate about the outcomes.

  • The government won’t be able to send out checks to federal workers and military personnel.
  • Federal benefit recipients, like those on Social Security, Medicare, or unemployment, will not receive checks.
  • The United States debt would be downgraded by rating agencies, making it less likely investors will buy federal bonds.

Any faith that people, particularly investors, around the world have in the (financial) stability of the U.S. government will be in jeopardy. This is a situation for which neither Democrats or Republicans want to accept the blame. The Gang of Six allows a few motivated members of Congress to work out a deal while the remainder bicker, posture, and try to work their public relations to help sure their outlook is favorable for the next election.

Part of the Gang of Six’s recommendations is the elimination of the Alternative Minimum Tax. This, along with $4 trillion in spending cuts, the Gang believes will allow Congress to agree on raising the debt ceiling. There have been many attempts to eliminate the AMT throughout the past few years, but Congress has never been motivated to follow through with the proposals. This time could be different.

Fortune

Published or updated July 20, 2011. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes, also known as Flexo, is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about him and follow Luke Landes on Twitter. View all articles by .

{ 20 comments… read them below or add one }

avatar SteveDH

Congress sends Tax laws to the IRS using a shotgun. There are always a few pellets that hit an unintended target. ATM hits a lot of them as does Making Work Pay and a couple of others I can think of. I’m not sure what “experts” you’re quoting but there are many that say the revenues the government receive now would cover, SocSec, Military Pay and Allowances AS WELL AS payments on the debt. Others programs such as military contracts and the questionable stimulus programs in-place would have to be cut. Making those debt payments might forestall downgrades and although the consequences would serious, the sky won’t fall, the birds won’t stop singing and Cubs won’t win the series. It’s not the faith of the people that puts us in jeopardy – its debt!

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avatar Kyle

“Congress sends Tax laws to the IRS using a shotgun. There are always a few pellets that hit an unintended target”

This is probably the best analogy I’ve ever heard.

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avatar shellye ♦107 (Cent)

Great analogy!

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avatar skylog ♦368 (Nickel)

i agree. great analogy. great comment. great visual.

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avatar lynn ♦155 (Cent)

Great analogy!

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avatar Bobka ♦13 (Newbie)

Let us all hope they come speedily to an agreement in Washington. I’m glad to hear that a permanent fix to the AMT is under consideration as part of the deal. The continuing debate and ongoing temporary year-to-year fixes to the AMT problem have been unacceptable.

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avatar Ceecee ♦796 (Dime)

Anything that simplifies the tax code is a good thing, unless maybe you are a tax accountant. Hope they reach some accord, I am sick to death of the fighting and unwillingness to compromise.

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avatar wylerassociate ♦905 (Dime)

I’m all for ending the AMT but there are too many tax loopholes that need to be closed & there needs to be a more simpler tax code.

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avatar jim

I won’t shed a tear if AMT is abolished. But I don’t think AMT is the evil bogey man people seem to act like it is. Only about the top 2-3% of tax payers are hit with AMT. This is not a middle class tax. What they should do is raise the exemption and then index it to inflation so its permanently fixed.

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avatar Jake

The most recent study I saw stated that 15-20% of taxpayers are hit with the AMT. And it disproportionally hits urban areas. $80k in NYC is not the same as $80k in Omaha.

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avatar MR ♦295 (Nickel)

To me, it seems like the AMT tax is like a higher tax rate on rich folks. I wonder why nobody talks about that? If I were rich, I would…

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avatar David M

No you would not talk about it – you know why, you would NOT be paying it!!!!

It hits the upper middle class. It was originally designed make sure the rich paid “there fair share of taxes”. However, the rich can and do employ well paid tax specialist to make sure they lower their taxes, but, do not get hit by the AMT.

This is why I want do away with ALL deductions (yes that includes mortgage interest and charitable) deductions and thus the tax RATES could be significantly decreased.

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avatar MR ♦295 (Nickel)

I’m not fond of the AMT, but I always heard that it would mean even less revenue for the government. Seems kind of a contradiction of goals to give people money back while complaining about not having enough money… That said, I’ll be glad if it’s gone too, to me it always sounded like a stupid tax…

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avatar david M

You can EASILY get more money when you eliminate the AMT!

How, you eliminate all the exemptions, deductions, credits, losses, etc. You then lower the rates and guess what you have MORE revenue! However, this only works, if you eliminate all the exemptions.

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avatar lynn ♦155 (Cent)

This would certainly simplify things for everyone. Most likely some at the IRS would loose their jobs, as well.

Also the government could raise the tax anytime they’d like. But, I suppose, they can (and do) elliminate the deductions when they want to.

What I wouldn’t give to see the real money coming in and where it’s truly going. If there is a web of deceit, then no one can find the truth.

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avatar cashflowmantra

I would love to see an end to the AMT along with a simplification of the tax code, but I will believe it when I see it.

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avatar david M

You are correct – the chance of BOTH happening is not likely! However, both happening is absolutely what NEEDS to happen.

If you get rid of the AMT but do not change the tax code – you decrease revenue.

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avatar lynn ♦155 (Cent)

I would wonder why the needyest portion of society would loose their checks. SS is NOT a part of the government budget. It is suppose to be a separate account that is NOT suppose to be touched by government officials. (we all know how well that works)

I say the officials should loose their pay for a month. After all, a patriot would gladly give that to benefit their country. What’s a few thousand to them among their millions and benefits. Or maybe they make so much cash, they can pay their own health care. Just a few thoughts. I realize this comment is coming off as snarky. It’s meant to. It is the sore spot to me. The handwriting is on the wall and congress and the house and the president have blinders on. This behavior is close to the point of no return.

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avatar Bryan J Busch ♦452 (Nickel)

It’s silly that the tax code is written using whole dollar amounts instead of percentages, what with inflation going up and down and the value of a dollar always changing. But it’s unthinkable that the AMT was designed and not linked to inflation. My household has been a victim of the AMT for the past few years, and we’re nowhere near the top 2-3%.

On the other hand, the increased tax bill as a result hasn’t come close to destroying our lifestyle, either.

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avatar qixx ♦1,815 (Half-Dollar)

Not having faced the AMT i don’t really care if it stays or goes. That said, i do support a simplification of the tax code an think AMT is more complex than the tax code needs. But doing this bandage over the symptoms of an over spending government is not a solution. Solving the real problems are what the government should focus on – then a more simplified tax code might just work.

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