The NYT told readers today that reducing the alternative minimum tax (AMT) would "involve a loss of hundreds of millions of dollars in revenue." Hmmm, where could we find that money? Actually, they meant hundreds of billions -- that's what the bill would be over a ten year budget horizon. Depending on the exact fix, you're talking in the neighborhood of 1-2 percent of projected revenue. The more important mistake is that the article doesn't really explain what is going on with the AMT. The AMT was put in place in the 80s to ensure that wealthy taxpayers could not abuse tax shelters to completely escape tax liability. It was intended to only apply to the highest income taxpayers, however it was never indexed to inflation. Congress has always voted to raise the levels at which the tax kicks in, but on the books, it is fixed indefinitely at its current level. This means that when the Congressional Budget Office (CBO) projectes revenue, they make their projections assuming that the AMT cutoff level is never increased. This means that CBO is projecting revenue that no one expects the government to actually receive. This problem became worse with the passage of President Bush's tax cuts since the gap between taxpayers' liability with the new lower tax rates and under the AMT became even larger. Of course, the real issue here is that the CBO projections actually understate the deficit (brave BTP prediction-- Congress will adjust the AMT), not the cost of fixing the AMT. Under the law, CBO must make projections assuming current law continues into the future, but reporters should recognize reality and it is silly to assume that Congress will ever allow the AMT to apply to large segments of the middle class. And, yes our friends at the CBO make this information readily available (Table 1-4).
--Dean Baker
