Night of the Living AMT

April 24, 2005

As the reach of the Alternative Minimum Tax (AMT) grows, pressure on Congress for reform continues to build.

The AMT—a second income tax that’s parallel to the regular income tax—was designed to make sure wealthy taxpayers didn’t get away with paying no tax. But thanks to inflation it’s hitting more less-than-wealthy Americans every year. And since the AMT doesn’t allow deductions of state and local income taxes like the regular federal income tax, taxpayers are beginning to complain to state and local governments. (For an excellent overview of the AMT, see the U.S. Treasury’s recent AMT fact sheet).

Tax Analysts recently published an article (download PDF here) that concludes:

As the AMT’s reach grows, disgruntled taxpayers may start blaming their state and local governments, as well as the feds, for their predicament. If that happens, don’t be surprised if you see popular state governors arousing their citizens to fight for repeal of the tax invented by nerdy guys with thick glasses and green eyeshades.

According to the U.S. Treasury, 3.8 million taxpayers will be hit with the AMT this year. Here’s a map showing which states have the most AMT filers as a percentage of total returns filed (top 10 states colored blue):

Figure 1. Percentage of Total Tax Returns Affected by the Alternative Minimum Tax by State, 2003

However, perhaps a more instructive figure is the percentage of taxpayers who have a positive tax liability that are hit with the AMT. The above map divides the total number of AMT payers by the roughly 131 million tax returns filed in 2003. However, more than 40 million of those taxfilers paid zero income tax, as they’ve been thrown completely out of the income tax base thanks to various credits and deductions. The map below shows the percentage of those who actually pay some income tax in each state who are hit by the AMT:

Figure 2. Percentage of Tax Returns With Positive Tax Liability Affected by the Alternative Minimum Tax by State, 2003

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