Can the AMT be abolished?
The Alternative Minimum Tax (AMT) is a tax system in the United States that was introduced in 1969 as a way to ensure that high-income individuals would not be able to use deductions and credits to completely avoid paying federal income taxes. It was meant to be a temporary tax, but it has become a permanent fixture of the tax code and affects millions of taxpayers every year. However, many have argued that the AMT is complex, difficult to understand, and often unfairly burdensome, leading to calls for its abolition.
The history of the AMT
The AMT came into existence after Congress and President Richard Nixon enacted it as a response to public outrage over the amount of income taxes paid by wealthy individuals in the late 1960s. The problem was that many of those individuals were able to take advantage of various tax loopholes and deductions, enabling them to pay little or no federal income tax each year. In response, Congress passed the Tax Reform Act of 1969, which created the AMT as a way to ensure that everyone paid a fair share of taxes.
Initially, the AMT was aimed solely at high-income earners, but in recent years, many middle-class taxpayers have found themselves subject to the tax. Part of the reason for this is that the AMT is not indexed to inflation, meaning that as incomes rise over time, more and more people become subject to it. Additionally, changes to the tax code in the 1980s and 1990s meant that more and more deductions and credits were subject to AMT calculations.
Why do some people want to abolish the AMT?
Opponents of the AMT argue that it is an unnecessary and confusing tax that adds a great deal of complexity to an already complicated tax code. Additionally, many argue that the AMT unfairly targets middle-class taxpayers who do not have the resources to properly plan for and comply with the tax. Critics further argue that the AMT does not achieve its intended goal of ensuring that high-income earners pay their fair share, as many of those taxpayers are able to avoid the tax through careful planning and the use of tax strategies.
One of the main issues with the AMT is that it does not take into account the differences in cost of living between different regions of the country. This can mean that taxpayers in high-cost areas, such as New York City or San Francisco, are subject to the AMT even if they are not necessarily considered wealthy in those areas. Additionally, the AMT can be particularly burdensome for taxpayers with large families or those who live in states with high state and local taxes, as those deductions are not allowed under the AMT calculations.
Is it possible to get rid of the AMT?
While there have been many proposals to abolish the AMT over the years, it remains a part of the tax code today. One of the biggest obstacles to getting rid of the AMT is the fact that it is a significant source of revenue for the federal government. In 2016, the AMT is expected to bring in approximately $35 billion in revenue, and repealing the tax would require finding an alternative source of revenue or significant cuts to federal spending.
Another challenge to abolishing the AMT is that there are many special interests who benefit from the current system and would fight hard to keep it in place. For example, the AMT provides a significant benefit to tax preparation companies, who charge higher fees to prepare AMT returns. Additionally, many high-income taxpayers who are subject to the AMT are able to use tax strategies and loopholes to reduce their overall tax liability, making it difficult for lawmakers to find a solution that would be fair to all taxpayers.
Conclusion
While the idea of abolishing the AMT is appealing to many, the reality is that it would be politically difficult to achieve given the significant revenue it provides to the federal government. Additionally, there would be many special interests who would fight to keep the tax in place. However, there are ways that lawmakers could reform the AMT to make it fairer and less burdensome for middle-class taxpayers while still ensuring that high-income earners pay their fair share. Ultimately, the decision about the future of the AMT will be made by Congress and the President, and it is likely to remain a controversial topic for many years to come.