These facts and projections highlight the increasing role of the AMT, and the problems it poses. The facts are based on the discussion paper “The Individual AMT: Problems and Potential Solutions.” The Tax Reform Act of 1969 created a minimum tax designed to ensure that individuals with high incomes did not take what was deemed undue advantage of tax laws to avoid federal income tax liability. The individual AMT is now on the verge of switching from a “class” tax to a “mass” tax. The trends are troubling because the AMT is notoriously complex, its effects on efficiency and equity are questionable, and its underlying purpose is controversial.

The descendant of a 1969 tax designed to prevent 155 wealthy people from escaping federal tax liability will affect 36 million, mostly middle-class taxpayers by 2010, say researchers from the nonpartisan Tax Policy Center, a joint venture of the Urban Institute and the Brookings Institution. [Read the <a href="http://taxpolicycenter.org/research/Topic.cfm?PubID=410561" title="Click to read the report online ..." class="smaller">report</a> and the companion <a href="http://taxpolicycenter.org/research/Topic.cfm?PubID=310565" title="Click to read this report online ..." class="smaller">policy brief</a>]

Originally targeted at high-income households, the individual alternative minimum tax (AMT) is now on the verge of switching from a “class” tax to a “mass” tax. Under current law, the AMT will encroach dramatically on the middle-class over the next decade and will become the de facto tax system for upper-income households. These changes occur because of the non-indexation of the AMT for inflation and the tax cuts enacted in 2001. The trends are troubling because the AMT is notoriously complex, its effects on efficiency and equity are questionable, and its underlying purpose is controversial. This paper provides information on the AMT, its economic effects, and options for policy reform, and is intended to help inform the debate and the eventual reforms that will be required in the near future.