Can someone explain the AMT to me?

[burnbaby]

I keep hearing about it in regards to the tax plan. Is it good to repeal it?

[brooklynite]

1. From Wikipedia...

The alternative minimum tax (AMT) is a supplemental income tax imposed by the United States federal government required in addition to baseline income tax for certain individuals, corporations, estates, and trusts that have exemptions or special circumstances allowing for lower payments of standard income tax. AMT is imposed at a nearly flat rate on an adjusted amount of taxable income above a certain threshold (also known as exemption). This exemption is substantially higher than the exemption from regular income tax.

Regular taxable income is adjusted for certain items computed differently for AMT, such as depreciation and medical expenses. No deduction is allowed for state taxes or miscellaneous itemized deductions in computing AMT income. Taxpayers with incomes above the exemption whose regular Federal income tax is below the amount of AMT must pay the higher AMT amount.

The problem is that, while it was intended for high-income earners, it has evolved into a rate that has a growing impact on middle-class taxpayers.

[unblock]

2. basically it's a way to limit how much taxes people can avoid with many deductions

you figure out your taxes the usual way with a whole lot of deductions available.

then you figure out your taxes the "alternative" way, which doesn't allow most deductions but has a tax rate that's lower than the top tax rate.

then you effectively pay according to whichever method says you own the most taxes.


the idea is to prevent people from taking so many deductions that they pay little to no tax at all.
the problem is that it sometimes affects people who aren't really abusing the deduction system.
for instance, upper middle class people in high tax states can have big mortgage and state and local tax deductions, and the amt can affect them.

adjusting it to avoid affecting them might make sense, and historically congress has increased the amt threshold for this very reason.

however, eliminating it entirely would likely bring back the crazy days before the amt, when super-rich people would pay zero taxes by finding every deduction under the sun.



the amt is complicated but good policy and could be improved, but it makes sure the rich pay something closer to their fair share so of course republicans want it gone.

[burnbaby]

4. Thanks

For coming down to my level. Now I have a basic understanding

[Demsrule86]

3. Alternate Minimum tax...and no it is not good to repeal it.

It allows people and corporations to pay nothing if they can find enough deductions...and the rich always can. But the good thing is in order to fix this...where the AMT is still in the bill, the GOP has to change the bill...and then it goes back to the Senate for a vote...means that both the house and the senate take a hard hard vote in an election year.

[BigmanPigman]

5. Yes, both chamber have to agree and this is NOT OVER!

The GOP is scared an pushing this crap through because they do jot want the public to find out how shitty it is and our calls had been working! Yeah, keep CALLING and tell everyone on social media. MSNBC had three different economics experts on and they all agree that the bill is corrupt and a disaster. Time is crucial and we have to make this our top priority and DO NOT get distracted. The MSM wants ratings and not focusing on this as much as they should. Now they are playing catch up! It is our responsibility to call our reps [phone]. Here are two good links to check out...
https://notonepenny.org/take-action/?p2asource=20171204tmemail
https://www.trumptaxscam.org/

[Demsrule86]

8. Exactly ...and judging from the reaction...people hate it and them.

[Cicada]

6. The AMT limits the degree to which certain deductions can reduce tax

Once upon a time, before the major tax reform which passed in 1986, many affluent tax payers used “tax shelters” to reduce their taxable income to a low amount. A doctor with wages of $250,000 would buy a partnership interest in newly built One Wilshire Boulevard. The building would be bought with 10% down with the cost depreciated over 15 years. $200,000 invested might generate a net tax deduction of $132,000 even tho the value of the building rose $150,000. Other itemized deductions and personal deductions might lower taxable income another $60,000 so tax would apply only to $58,000, taxed at a much lower rate than otherwise would apply. The AMT would limit the total amount deductible so the doctor paid a higher amount than the normal tax on $58,000. The doctor was forced to pay an alternative minimum tax to limit how low he could drive his taxable income.

When inflation was high as it was then delaying tax payments until the building was sold valuable. A depreciation deduction was included back into income when the building was sold for more than it cost but the ability to defer tax on that depreciation for 10 years might be worth 50% of the deduction because the unpaid, deferred tax could be invested in US Govt bonds paying 10% tax free interest per year.

This distorted economic investments. Dallas was full of empty high rise office buildings which could make economic profit even if they were vacant. It was unfair because doctors did not have to pay a fair tax rate and economically dumb. Investors were buying the buildings with tax deductions rather than real money. Building empty buildings did not help the economy in the long run.

The exemptions from the alternative minimum tax were not increased over time so inflation caused more and more people to be caught by the tax over time. At first only few made enough income to be caught. Over time a higher and higher percentage were caught. Repealing the AMT will lower the taxes paid by the affluent who use tax advantaged investments, bringing back unfair tax reductions in investments not generating real economic gains for the economy, tho not as much as when inflation was 8% a year.

[yallerdawg]

7. The Dotard and self-serving tax policy.

From: http://www.businessinsider.com/trump-abolish-alternative-minimum-tax-2005-return-2017-3

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If the AMT didn't exist, Trump would have paid only a fraction of his 2005 bill. Trump's return shows that alongside the AMT adjustment the other taxes he paid totaled only about $7 million, or 4.5% of his $153 million in total income. As it is, Trump paid an effective tax rate of about 25% on his income.

*****

Under Trump's proposal, he would have paid about 5.5% in tax rather than the 25% he actually paid. That would have lowered his tax rate to below that of people who earn less than $100,000, according to The New York Times. It would also have saved him about $31 million.

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The intent of the AMT is to ensure that wealthy and self-employed Americans pay tax rates that are comparable to those paid by ordinary workers on a salary or a simple wage. The AMT was introduced in 1970 with an aim to keep wealthy people from paying lower tax rates that those poorer than them.

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