Ah, yes, the fictions a certain party spins.
Always claiming they want to make the tax system fair, but to them that only means the rich should pay less taxes.
One of the biggest fictions was the alternative minimum tax (AMT). Developed as part of the Reagan tax cuts for the rich, it never functioned as promised- because it was never so designed.
The promise? The AMT would ensure that the rich, with their ability to hire the best tax advisors and create special circumstances, would actually pay taxes for the money they sheltered with their schemes.
The design? The AMT was paid primarily by the upper middle class. No, not the top 5%, but many of those in the 15 to 5% range. And, 30 years later, it continues- many of those who paid AMT on their 2017 incomes were making $ 200K or less.
The AMT was supposed to be eliminated in the “Tax Cuts and Jobs Act” (sic) of 2018. Notice the adverb “supposed”. AMT was, indeed, changed, but it was changed to protect even more of the wealthy as it siphons funds from the much less well off. Instead of the 5 million who’ve been affected each year by AMT, the numbers should hereafter affect only some 200 to 250K filers. (The top, the 4 million who really deserved to pay AMT, will only provide about 125K of that census this year.)
One of the big changes was that the AMT no longer is triggered by the state and local tax (SALT) deduction. D-uh! That’s because there is a limit of $10K on that deduction for everyone. (OK- for those who live in Democratic states and communities.) The higher value of those SALT payments not only caused the AMT tax to cut in, but limited the value of personal exemptions (those exemptions no longer exist either) and the total of the itemized deductions on Schedule A. (Again, the state/local tax has already been limited, and the 2% miscellaneous deductions have been eradicated as allowable under the new law.)
The data in the graphs below are based upon folks who file a joint tax return and don’t itemize. (Remember- the new standard deduction is $24K; given that SALT is limited to $ 10K and mortgages can’t exceed $ 750K, a whole bunch of folks will no longer be able to itemize their deductions.)
Notice how few (the purple lines, not the green ones) of the rich really get hit with AMT. Under the old law, most folks had no fear from AMT when their adjusted gross income hit $ 500K- which is exactly where the American citizen was told AMT would hit the hardest. Instead those making about $ 100 to $125K paid the higher AMT rate- until the spike at $ 400K or so, after which AMT collections seem to disappear.
Under the new law, the AMT bite hits about the same income level, but disappears as a threat around $ 330K or so.
One should also realize that the AMT actually does not change the taxes due. (Oh, sure, it changes the tax payments due for this year, but..) Instead, the AMT “defers” the tax benefits from some of the creative tax-reducing schemes- like accelerated depreciation (which some folks wrongly term write-offs), net loss carry-forwards, and incentive stock options. So, that means these “surcharges” to the taxes one pays are called “credits” that may be deducted at a future date, when the taxpayer no longer owes any AMT. Which means this year those 4 million rich folks are going to get an even greater windfall than you heard about from the new tax law.
(Note that unless Congress adjusts this tax law, the AMT reverts to the old method in 2026.)
