Tax for the rich only, but not anymore

The alternative minimum tax indeed was started to tax the rich — specifically rich people avoiding income taxes.

On Jan. 17, 1969, Treasury Secretary Joseph W. Barr told Congress that 155 taxpayers making $200,000 or more found a legal way to not pay any taxes on their 1966 income.

That shook lawmakers into creating the alternative minimum tax in the Tax Reform Act of 1969. (For comparison’s sake, $200,000 in 1966 is nearly $1.3-million in 2007, according to government-run inflation calculators.)

Because of the law, people who are able to use deductions and legal shelters to lower their tax bill too much must pay a minimum income tax, the AMT. Under the law, taxpayers who meet the AMT threshold must pay the higher tax bill, whether it’s their actual bill or the AMT.

But because of the way the law calculates who meets the threshold, more and more people have been swept into the program. By 2006, 3.5-million taxpayers fell under the AMT, which equates to about 4 percent of American taxpayers, according to the Congressional Research Service. That brought in $24-billion in taxes. But that was with a “patch” by Congress that limited how many taxpayers are affected.

Without a change for 2007, 23.4-million taxpayers are going to be paying the AMT, sending $70-billion to the federal government, according to an estimate by the Tax Policy Center, a joint effort by the Brookings Institution and the Urban Institute.

Policymakers have been talking for years about changing the formula that triggers the AMT so that it only catches the very wealthiest taxpayers, but so far the rewrite hasn’t happened.