Policy Watch: The Expanding Reach of the Individual Alternative Minimum Tax

Abstract

The individual alternative minimum tax (AMT) was designed in 1970 to apply reduce aggressive tax sheltering, but under current law will grow to cover tens of millions of households in the next decade. The growth occurs because the AMT is not indexed for inflation and the 2001 tax cut reduced regular income taxes but not the AMT. AMT growth is troubling because the tax has questionable effects on equity and efficiency and is inordinately complex. This paper describes the AMT, discusses economic issues related to the alternative minimum tax, and examines options for reform.