A precursor to the current individual alternative minimum tax (AMT) was originally enacted in 1969 to limit the amount of tax sheltering that taxpayers could pursue and to assure that high-income filers paid at least a minimal amount of tax. However, the current AMT has strayed far from those original goals and threatens to grow from a footnote in the tax code to a major component affecting tens of millions of taxpayers every year. This testimony outlines how the AMT works, whom it affects, and why it demands attention. It also discusses possible ways of reforming the AMT and why financing AMT reform or repeal is important.

Tax rate reductions on long-term capital gains and qualifying dividends were a key, highly touted component of the tax cuts passed in the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA). However, like the 20012006 tax cuts more broadly, taxpayers affected by the individual alternative minimum tax (AMT) may not pay the advertised lower rates. This article explains the interaction between the capital gains rate and the AMT and provides example tax calculations for two sample taxpayers.

A precursor to the current individual alternative minimum tax (AMT) was originally enacted in 1969 to limit the amount of tax sheltering that taxpayers could pursue and to assure that high-income filers paid at least a minimal amount of tax. However, the current AMT has strayed far from those original goals and threatens to grow from a footnote in the tax code to a major component affecting tens of millions of taxpayers every year. This testimony outlines how the AMT works, whom it affects, and why it demands attention. It also discusses possible ways of reforming the AMT and why financing AMT reform or repeal is important.