The Individual Alternative Minimum Tax

Report
January 15, 2010

Economic and Budget Issue Brief

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 intended to impose taxes on high-income individuals who use tax preferences to greatly reduce or eliminate their liability under the regular income tax. The current version of the alternative tax, the alternative minimum tax (AMT), requires people to recalculate their taxes under rules that include in their taxable income certain types of income that are exempt from the regular income tax and that do not allow certain exemptions, deductions, and other preferences. That second set of rules raises marginal tax rates (the tax on an additional dollar of income) for some taxpayers; modifies or limits various credits, deductions, and exclusions that apply to regular income taxes; and adds to the complexity of the tax system.