AMT Fix Could Cost $1 Trillion, Says White House

by Mike Godfrey, Tax-News.com, Washington

22 February 2005

Reform of the Alternative Minimum Tax system could cost up to $1 trillion over ten years, according to a recent White House economic report.

The AMT is a shadow tax introduced in 1969 to ensure that the wealthiest Americans make a sufficient contribution to the tax system. However, the tax is not indexed to inflation and is now affecting millions of taxpayers down the pay scales that it was never intended to hit.

It has been estimated that the AMT’s growing reach will affect 20.5 million taxpayers by 2006, up from 3.8 million in 2004, and President Bush’s tax reform panel is charged with finding a revenue neutral way in which the unpopular tax can be pruned or abolished.

However, the 2005 Economic Report of the President noted that an estimated $1 trillion in tax revenues will have to be raised elsewhere if the AMT is eliminated.

This being the case, outgoing chief economic advisor to the White House, Gregory Mankiw, hasn’t ruled out the possibility that the AMT problem could be solved by merging it into the existing income tax system.

Experts have suggested that this could mean eliminating some deductions and combining income-tax rates, resulting in a new system resembling more the current AMT than the current income tax system.

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