The AMT: why we should retain it with minor reforms to protect the true middle class

by Linda Beale

The AMT: why we should retain it with minor reforms to protect the true middle class

A commenter on an earlier thread complained about the Alternative Minimum Tax (AMT), saying it should be abolished. He seemed somewhat misinformed, suggesting that the alternative to the AMT is better enforcement.It seems that it might be timely to remind readers about the purpose of the AMT, its advantages as well as its flaws, and the way that reform could reasonably be undertaken to better accomplish its purposes. The following is an edited excerpt of my response to that reader on this issue.

The purpose of the AMT is to limit the advantage from aggregating deductions and exclusions and other provisions that are of particular benefit to those with high incomes.

For background, readers may want to read my extensive article on the AMT, available on SSRN at Or you can skim through the more accessible (and less dense) series of blogposts on the AMT based on the ideas and information in the article, titled “What Should Congress Do about the AMT?:

Part 1, available at,

Part 2, available at;

Part 3, available at;

Part 4, available at;

Part 5, available at; and

Part 6, available at

The AMT operates (admittedly imperfectly) to reduce the tremendous advantage that the highest-income Americans in the top 20% of the income distribution enjoy from the many deductions, exclusions and outright subsidies built into the tax Code. Many of those deductions and exclusions make some sense if provided to those who otherwise would pay too high a rate of tax—i.e., the personal exemption, the medical expense deduction–or if the intent of a transaction would be somewhat undone by taxation–i.e., the gift exclusion. But many of them don’t make much sense at all (e.g., the charitable contribution deduction at face value rather than at investment amount; the mortgage interest deduction) and certainly don’t make sense as a regressive item that provides the greatest benefit to the highest income recipients. The AMT operates to reduce that unmerited advantage by measuring (again, imperfectly) the cumulative effect of preferences that reduce taxes. As tax policy, it has the disadvantage of adding complication and creating some confusion, but the clear advantage of providing another way of ensuring that those with high incomes pay some tax.

Congress should quit its annual extension of stupid giveaways like the R&D credit, and it should quit its senseless annual extension of the AMT “patch”. Instead, it should reform the AMT along the lines that I suggested in the article and series of postings–by treating the capital gains preferential rate as an AMT preference item (which was done earlier in our more sensible history), by indexing the AMT exemption amount to inflation at an amount that would correspond, in the context of the AMT, to similar protection offered by the regular tax for those in the bottom 60% of the income distribution. The latter step would prevent the problem of the AMT reaching ever lower into the income distribution and thus protect the middle class, while permitting the AMT to operate as it should on the top two income quintiles.

originally published at ataxingmatter