Why amt

Figure 2 divides the number of AMT payers by the roughly million total tax returns filed in However, more than 40 million of those tax filers paid zero income tax in that year, as they have been removed from the income tax base thanks to various credits and deductions. Figure 3 below shows the percentage of tax filers who pay some income tax in each state who are affected by the AMT.

What Should Be Done? One advantage of repeal is that it would help refocus tax reform efforts on broadening the tax base and lowering rates in the regular income tax system. However, the most economically sound way to achieve that was not to graft additional complexity onto the tax code. It was to eliminate the very tax preferences that were the source of the abuse. Eliminating the AMT while broadening the current tax base would achieve two main goals.

Second, a broader tax base would allow revenue-neutral reductions in marginal rates. Since high marginal rates provide the main incentive for tax evasion, rate reductions reduce the incentives for tax evasion to begin with.

Made high-income taxpayers subject to phase-out of exemptions. Increased number of tax preferences. Allowed an income tax credit for prior year AMT liability. Changed rules about gains on stock of small businesses. For more information, please contact Bill Ahern at The Tax Foundation works hard to provide insightful tax policy analysis.

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May 24, Patrick Fleenor. Andrew Chamberlain. Print this page Subscribe Support our work. The lower estimate comes when using the median hourly private sector wage, the higher when using median professional wages—the latter to account for AMT filers typically being higher-income. Eliminating the AMT alone is a second-best solution. The purpose of the AMT is to prevent individual taxpayers from reducing their taxable income by too much.

But why is that a policy goal? If those deductions serve a purpose, then it does not make sense to punish certain taxpayers for engaging in behavior lawmakers have decided to incentivize. If these deductions are not economically sound, then policymakers should eliminate those deductions, instead of creating a separate tax system to penalize individuals who benefit from too many of them at once.

Revenue generated from eliminating inefficient deductions could then go towards reducing marginal tax rate s, thus compensating for the economic effects of AMT repeal. Eliminating the AMT is a good idea. But policymakers should also address the myriad tax provisions that drove Congress to create the AMT in the first place. The Tax Foundation works hard to provide insightful tax policy analysis. Our work depends on support from members of the public like you.

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