Tax Update Blog: Permalink

While another AMT patch temporarily addresses the increased scope of taxpayers subject to AMT, a permanent solution is obviously what we need. However, according to the AMTBlog.com posting on March 31, 2009, making the patch permanent would cost our country trillions of dollars in the next ten years. A reform of this magnitude could potentially not only dramatically decrease the amount of taxpayers subject to AMT and also the amount of Federal income tax collected from AMT, but would also significantly increase costs associated with implementation of such a reform. Yet still, the AMT would not be calculated in regards to inflation, instead only the exemption amounts allowed would be permanently increased and the personal credits allowed would also be made permanent. An alternative form of a permanent patch would be indexing for inflation in regards to the deductions that are considered in calculating the adjustments used in the formulation of AMTI per taxpayer, which is proposed in President Obama’s 2010 Budget Tax Proposal. While attaining the same objective of decreasing impact of the AMT on individuals, this form of permanent resolution can potentially decrease the financial burden on the U.S. government. This would be accomplished by redistributing the amount of AMT imposed away from a large number of middle-income taxpayers and high-income taxpayers back to mainly imposing on the high-income taxpayers, for which the AMT was originally employed. While the AMT amount collected would decrease slightly, it would not be as dramatic as the decrease that would be realized from a permanent patch. Indexing the AMT and its components for inflation would cause a slight decrease in funds in the initial years of execution, however as the taxpayers recover from the recent economic downturn the amount of taxpayers subject to AMT, within the high-income range, will begin to increase at a minimal rate which will also cause an influx of Federal income tax collected from AMT. Thus, equalizing, over a period of time, the financial costs of the 2010 Tax proposal in regards to AMT indexing.

The AMT needs a permanent, not temporary patch to insure that it begins to once again meet its original intention, The intention of the AMT, which was introduced by the Tax Reform Act of 1969 is to insure that high income taxpayers who are able to use tax benefits to successfully avoid paying tax are still faced with a fair share of tax liability. The middle-class taxpayer pays a disproportionate amount of the tax revenue and it is becoming increasingly common for them to be faced with an AMT liability. This occurs due to failure to index the AMT for inflation. A permanent and fair solution is needed to insure the AMT begins to fulfill its original intention.
W.Dover, Graduate Studies, Gardner Webb University