Once Again the CBO is bringing bad news to the Obama Administration. With the expiration of the AMT provisions at the end of 2009, an estimated 27 million people will be paying some amount of the AMT paying on average an additional $3,900 in taxes (granted the median tax increase is probably considerably less). Good news in terms of keeping the deficit low, probably bad news for the Democrats once people realize their taxes are going up solely due to inflation (i.e. you really aren’t richer, its just that inflation has pushed you into a higher tax bracket).
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.
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For the past four decades, the individual income tax has consisted of two parallel tax systems: the regular tax and an alternative tax, which was originally intended to impose taxes on high-income individuals who use tax preferences to greatly reduce or eliminate their liability under the regular income tax.
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For most of its existence, the AMT has played a minor role in the tax system, accounting for less than 2 percent of individual income tax revenues (or 1 percent of total revenues) and affecting less than 1 percent of taxpayers in any year before 2000. Since then, the tax would have reached more and more taxpayers (because, unlike the parameters of the regular income tax, those of the AMT are not indexed for inflation), but lawmakers have intervened each year to slow that expansion. In addition, a series of reductions in the regular income tax enacted starting in 2001 would have caused even more returns to be subject to the AMT were it not for the series of temporary adjustments that lawmakers made to the alternative tax.
Complete CBO brief can be found here (pdf).
