Tuesday, January 19, 2010
The number of people who will be subject to the alternative minimum tax (AMT) will increase dramatically in 2010 under current law. About 4.5 million taxpayers were affected by the AMT in 2009. That number has been kept relatively small by annual modifications to the AMT rules, but the most recent modifications expired at the end of calendar year 2009. Consequently, about 27 million taxpayers (see figure below) — one out of every six taxpayers — will be affected by the AMT in 2010, paying on average an additional $3,900 in tax. Nearly every married taxpayer with income between $100,000 and $500,000 will owe some alternative tax.
Tax Returns Affected by the Alternative Minimum Tax (Millions)
As an increasing number of taxpayers incur liabilities under the AMT, pressures to permanently reduce, eliminate, or otherwise modify the tax are likely to grow. A brief released by CBO today describes the expanding scope of the AMT and the changes in the types of taxpayers affected by the tax, if current law remains unchanged. The brief also discusses three options that illustrate the range of choices policymakers face: indexing the AMT’s parameters for inflation; allowing additional exemptions and deductions under the AMT; and eliminating the AMT. Each of those options would involve revenue losses of several hundred billion dollars over the next 10 years relative to receipts projected under current law.