Democrats Criticise Temporary Fix To AMT

by Leroy Baker, Tax-News.com, New York

06 May 2004

A one-year temporary fix to the Alternative Minimum Tax has been criticised by Democratic lawmakers for failing to address the long term results of the tax, which could affect nearly 30 million US taxpayers by the end of the decade.

Although the Bush administration has expressed a willingness to formulate a long term solution to the AMT, which is trapping increasing numbers of middle class taxpayers that it was never designed to hit, a Republican-backed bill is currently passing through the House that offers relief from the tax only until the end of 2005, a move which Democrats say is designed to preserve the President’s more popular tax cuts from a cost perspective.

The stated purpose of the Alternative Minimum Tax is to prevent very high income taxpayers from paying little or no income tax by taking advantage of various deductions and credits.

Until 2000, less than 1 percent of taxpayers paid the AMT in any given year.

However, the Congressional Budget Office (CBO) has noted that under current law, the number of taxpayers affected by the AMT, which is not indexed to inflation, will grow from just over 1 million in 2001 to nearly 30 million in 2010, before falling back to about 23 million in 2014 after the expiration of the 2001 and 2003 tax cuts.

Whilst a permanent fix to the AMT has widespread support, reform of the system could be very expensive in terms of lost tax revenues, and any future administration is likely to baulk at the estimated $600 billion cost of repealing the tax.

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