The practice of requiring well-to-do Americans to pay a minimum tax was developed more than three decades ago. In January, 1969, then-Treasury Secretary Joseph W. Barr informed Congress that 155 individual taxpayers with income exceeding $200,000 paid no tax in 1966. The news set off a political firestorm that resulted in the creation of a minimum tax. Under current law, 36 million taxpayers will be subject to the current minimum tax by 2010. This Issues and Options paper examines how tax designed to target 155 taxpayers grew so dramatically, the economics of the AMT, and the options for reform.

Taxpayers pay alternative minimum tax (AMT) if their AMT liability exceeds their regular income tax. Originally targeted at a few high-income households who paid no federal income tax, this class tax is about to become a mass tax. The projected expansion occurs because the AMT is not indexed for inflation and because last year’s tax cut steadily pares regular income tax obligations without providing significant and sustained AMT relief. The increases are troubling because the AMT is notoriously complex and has dubious effects on equity and efficiency.

Taxpayers pay alternative minimum tax (AMT) if their AMT liability exceeds their regular income tax. Originally targeted at a few high-income households who paid no federal income tax, this class tax is about to become a mass tax. The projected expansion occurs because the AMT is not indexed for inflation and because last year’s tax cut steadily pares regular income tax obligations without providing significant and sustained AMT relief. The increases are troubling because the AMT is notoriously complex and has dubious effects on equity and efficiency.