AMT is Alternative Minimum Tax and it is an income tax that was put in in 1970 to make sure that people who were typically getting out of their burden of taxes in writeoffs actually had to pay their fair share. What’s the problem? The tax brackets were set without taking inflation into account and so are rapidly affecting more and more Americans. The AMT does not allow you to include many normal deductions and may be owed on top of the regular income taxes.
- Slate: Bush’s Secret Tax on Democrats – Republicans don’t want to fix the AMT because fixing the AMT would require undoing their beloved tax cuts. Without the billions generated by millions of taxpayers getting slammed by the AMT, the marginal rate cuts would be impossible to sustain for the next several years, let alone make permanent. Without the AMT, the deficit picture would look far worse than it does. This paper by Daniel Feenberg and James Poterba of the National Bureau of Economic Research projects $480 billion in AMT revenues between 2003 and 2010, with the AMT providing $125 billion in 2010. Gale and Burman estimate that repealing the AMT could cost the treasury $1.1 trillion through 2014, assuming the tax cuts are extended. The kicker: “By 2008, it would cost more to repeal the AMT than to zero out the regular income tax.”
My guess this is how the Bush Administration is planning on financing the Iraq war and many of the other deficit causing plans. Plus the supposed income tax cuts are popular with the masses – at least until they (if they) figure out the real picture.