The alternative minimum tax (AMT) makes sure that high-income citizens may at least a minimum of income tax. It adds enormous complexity to the tax code and increasingly burdens middle-class families, but it would be costly and difficult to replace.
The Tax Policy Center estimated what it would cost to scrap the AMT and enact the Fair Share Tax, a recent legislative proposal that would impose a 30 percent minimum tax on individuals earning more than $1 million. (The tax would phase in so its full force wouldn’t hit taxpayers as soon as their income topped $1 million.)
We found that the Fair Share version of the Buffett rule wouldn’t come close to paying for AMT repeal. Scrapping the AMT would lose a whopping $1.2 trillion relative to current law between now and 2022. The Fair Share Tax would only recover about $100 billion of that revenue, for a net loss of $1.1 trillion.
What would it mean relative to current policy – a more realistic baseline under which the AMT would be permanently patched and the 2001/2003/2010 tax rates extended? The AMT fix would reduce revenue by $550 billion over the decade while lower rates would boost the amount the Fair Share tax would bring in by about $150 billion. The net: the swap would still lose $400 billion over 10 years.
Why does the AMT generate so much more revenue than the Fair Share tax? The biggest reason is that the AMT simply hits a much bigger chunk of taxpayers. By design, the Fair Share tax wouldn’t affect anyone making less than $1 million. Yet 96 percent of AMT taxpayers have incomes under $1 million, accounting for 77 percent of all AMT revenue. The Fair Share tax would need to start at a much lower income level to make up the lost revenue from the AMT.
The AMT may be a mess, but it would be awfully costly to replace.
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The Tax Policy Center is a joint venture of the Urban Instituteand Brookings Institution. The Center is made up of nationally recognized experts in tax, budget, and social policy who have served at the highest levels of government. TaxVox is the Tax Policy Center's tax and budget policy blog.
