Legislation To Repeal America's Alternative Minimum Tax Is Introduced

Mike Godfrey, Tax-news.com, Washington

19 March 2001

As we reported last week, US tax groups including the The American Institute of CPAs, the Tax Executives Institute, and the Taxation Section of the American Bar Association, have been calling for the repeal of the Alternative Minimum Tax (AMT). Now Republican Mac Collins has introduced legislation to abolish the AMT, calling it a threat to tax relief.

The AMT is a separate tax computation that reduces the benefit of certain deductions and credits. It attempts to ensure that individuals and corporations who benefit from these tax advantages will pay at least a minimum amount of tax. Collins claims that with the erosion of the most extreme tax shelters and credits through tax reform during the last two decades, the AMT now functions mostly as a complicated and punitive tax.

Introducing the proposed legislation, Collins stated: 'The AMT was passed more than three decades ago and has completely outlived its purpose. The AMT is complicated, punitive and serves mainly to threaten the tax relief Congress is trying to provide working Americans.'

One of the principal grievances with the AMT is that people who were never orginally intended to be touched by the AMT - such as middle income earners and families - are now falling into its clutches. Collins said: 'Tax rates and policies have changed, but the AMT has not. It is a complex and unfair tax anachronism.' According to Collins, the IRS has itelf called for the AMT to reconsidered because it difficult to understand and, indeed, to enforce.

The legislation put forward is entitled the Alternative Minimum Tax Repeal Act (AMTRA). In the first instance, it increases the AMT exemption level to reflect inflation. Subsequently, it will increase the exemption by 10 per cent each year. At the end of ten years, the individual AMT will be fully repealed. The exemptions for 2001 will rise from the current $45,000 for the joint filer to $52,000 per year, and for the single filer from $33,750 to $38,000. Married taxpayers filing jointly will see their current exemption of $22,500 rising to $26,000.

The Joint Committee on Taxation estimates that 1.5 million Americans will fall prey to the individual AMT in 2001, and that by 2011 around 21 million taxpayers will be in the tax trap. It is thought that taxpayers will save about US$196bn over 10 years if the AMT is repealed. Collins added: 'AMTRA will simplify procedures for taxpayers and it will stop an outdated item in the tax code from blocking tax relief the president and Congress are working to provide wage earners.'

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