The Great Noncrisis of the AMT
by Joseph J. Thorndike
Date: Apr. 11, 2005

Full Text Published by Tax AnalystsTM

Joseph J. Thorndike, a historian, is responsible for Tax Analysts' Tax History Project Web site.

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Pundits tell us that the federal alternative minimum tax is a political train wreck just waiting to happen. Over the next several years, this rich man's burden will reach down into the middle class, foisting complexity and higher tax bills on millions of hapless taxpayers. Just wait, the experts warn, Americans will grab their pitchforks, storm the Capitol, and demand relief.

Don't count on it. The AMT is shaping up to be the nation's next great nondisaster. Move over, Y2K (the global computer nonevent of 2000) -- the AMT wants a spot in the Chicken Little Hall of Fame.

That's not to say that the AMT won't grow dramatically. Unless lawmakers can turn up hundreds of billions of dollars to pay for repeal, it will soon ensnare almost one-third of all taxpayers. And a bigger AMT will make a bad tax system even worse. Originally designed to soak the rich, it actually burdens the middle class. It also makes the convoluted income tax even more complex. It's a bad tax, a blight on the nation's revenue structure.

But is it bad enough to force political action? Will the AMT cause enough pain to ensure its own demise? Sadly, the answer is probably no.

When it comes to taxes, pain can be a good thing. It keeps people vigilant, prompting them to cast a skeptical eye on government spending. For conservatives, this has obvious appeal; burdened by painful taxes, Americans will presumably resist big government.

But liberals, too, should find an upside in the pain of taxpaying. No less a progressive paragon than Franklin Roosevelt endorsed the idea. Asked if he supported broader income taxes, FDR spoke up for civic responsibility. "It wouldn't bring in much revenue," he acknowledged, "but it does give added responsibility of citizenship."

To be conscious of their taxes, however, Americans have to see them. Hidden levies, while often burdensome, don't prompt the sort of scrutiny that keeps government honest and frugal. Even worse, hidden taxes can become their own source of inefficiency and inequity.

That's what has happened to the AMT. The tax, so often decried for its complexity and unwarranted impact on the middle class, remains largely invisible to the people who pay it. For that, we can thank Intuit and H&R Block.

Sophisticated software and professional tax preparation have rendered our federal revenue system in general -- and the AMT in particular -- just a bit too painless. TurboTax deals with the AMT almost in passing. Yes, the program tells the unlucky taxpayer, you have run afoul of this fiscal Frankenstein; but don't worry, we'll do the math. Tax preparers offer the same service to an ever-growing number of Americans. In 2002 more than 83 percent of Form 1040 filers paid someone else to do their taxes.

To be sure, the AMT represents a significant tax hike for those who pay it. In 2005 it will impose an average surcharge of $5,840 on 3.4 million taxpayers, according to the nonpartisan Tax Policy Center. By 2010 the surcharge will shrink to $3,584, but its scope will grow to almost 30 million taxpayers. The AMT is going to take smaller bites from more people. Maybe all those overburdened hordes will demand reform, forcing lawmakers to repeal the AMT.

Maybe, but probably not. AMT taxpayers will pay more, but relatively few will pay a lot more. The pundits tell us that the anti-AMT backlash will come from the middle class. But in 2005, affected taxpayers earning between $100,000 and $200,000 will shell out, on average, about $2,308 extra. Those making $200,000 to $500,000 will pay an additional $4,693. That's real money, but will it be enough to prompt change? Will the extra burden force enough people into the streets with their proverbial pitchforks?

Many critics think so. They believe the AMT "crisis" is part of a Republican plot to destroy the income tax. "Bush administration officials and their anti-tax allies seem to believe that if taxpayers become angry enough at having to pay the alternative tax, they will throw their support behind any tax reform plan the administration puts forth," The New York Times charged in a recent editorial.

That prediction rests on the notion that somebody cares. More precisely, it assumes that lots of people will care, as the AMT seeps into the middle class. In fact, would-be tax reformers -- both liberal and conservative -- may be sadly disappointed. Bad taxes are just too easy to tolerate in this age of convenience.