The key point here is
the AMT is not a tax on the truly wealthy and never was. And now that inflation has taken its toll, it is a tax on the upper middle class and, if left alone will eventually take in the rest of the middle class as well.
And given how completely Byzantine and almost purposefully punitive it is in its various provisions, there is no better tool than the AMT to turn people into anti-tax zealots willing to burn everything down and start again, which is exactly what Grover Norquist wants. (hint: they left AMT reform out of the 2001 bill for a reason)
And there would be no better tool to help dispel the notion that Democrats never met a tax they didn't like, than a bill to abolish the AMT and raise the upper brackets of the ordinary income tax to make up the difference.
Class warfare? You bet. But in this case, even the accountants would thank us, despite the fact that they'd be losing work; the AMT is that bad.
On the flip, I go into what the AMT is really about.
What you have to do is imagine a parallel universe, subtly different from our own (Spock has a beard, etc...), complete with its own version of the Federal Government and its own version of the tax code. At tax time you fill out your ordinary 1040 in the ordinary universe, then you take the dimensional gateway to pop over to the alternate universe, find out how much the Alternate Federal Government wants,
and
if that happens to be more, you pay that instead.
Make no mistake, this alternate tax code is every bit as detailed as the ordinary one that we are familiar with, albeit purposefully different in lots of random ways. You can end up doing two versions of everything, Schedule B, Schedule D, you name it...
And I truly mean "random" here; the folks who wrote this law back in 1968 had a particular goal in mind (keep reading) but they really didn't know how to accomplish it. So they threw in lots of obscure provisions, solely for the sake of making things sufficiently different/difficult that you couldn't possibly plan for it and therefore would give up on trying to exploit the "loopholes" in the ordinary tax.
And since they made the exemption so high that this could only affect a small group of relatively well-off folks, they didn't really have to worry about getting it right. If the various provisions interact in weird ways, who cares? Only "the rich" will suffer. For the same reason, later tax-simplification efforts could easily get away with not addressing the AMT at all.
Meaning that, in the alternate universe, the 1986 tax bill never happened.
The AMT has a $56000 exemption and two marginal brackets, 26% and 28% the higher of which kicks in somewhere around $150K. These numbers are not adjusted for inflation; there have been one or two trivial increases since 1968 and that's it.
Note that the top bracket of the ordinary tax is 35%; once you're up that high, that rate kicks in and very quickly swamps out whatever the AMT formula would be billing you.
Meaning the wealthy (i.e., folks making $400K and up) do not get touched by this at all unless they're doing some very strange things with their finances. And most of them are able to afford accountants to tell them what not to do.
Yes, it affects a small number of people, but it's not the upper end of the scale, but rather a group of people in a relatively narrow range of incomes. In 1968, $56K was a hell of a lot of money. Translated to today's dollars, this would be around $300K. But even if you were to update all of the other AMT parameters for inflation, the AMT would still effectively phase out somewhere around $500K or so as the ordinary tax took over again.
Which is fairly well off, I'll grant, but the point is,
- you'd be hitting just the folks in that range and nobody else.
- as things currently stand, i.e., since we haven't adjusted for inflation, the real range is much lower and is starting to include a lot of people.
The real purpose of the AMT -- as it was originally conceived in 1968 -- was to address the problem of people (not necessarily wealthy) paying zero tax, which at the time was deemed a Bad Thing. And didn't matter in the slightest if there were legitimate reasons to be paying zero tax.
It was sheer demagogery for the most part: "Look at this asshole who makes $100K/year and pays no taxes!" was enough to get people angry. And so they passed a law.
But consider a typical way of accomplishing zero tax: Imagine you're a retiree who puts all of your savings into tax-exempt municipal bonds. Your adjusted gross is $0 and presto! No tax. Evil, right?
And thus one of the many random provisions of the AMT is to make certain kinds of muni bonds taxable in AMT Land.
The piece of the puzzle they leave out is that muni bonds pay much lower rates of interest. In fact, it works out to roughly the same as the after-tax income you'd get if you'd spent the same amount on a taxable bond instead. That's how markets work. Thus, the person with all of his/her assets in munis has, effectively, already paid a tax before the money even arrives.
The real beneficiary of a muni bond is not the bondholder but rather the state/local government entity that is paying reduced interest on its loan. A perhaps roundabout way for the feds to subsidize states+locals but it works and is rather important now that more and more responsibility (think "welfare reform" here) is being devolved onto the locals.
And you can go down the list of other "loopholes" the AMT tries to address and get similar stories. Eliminate the deduction for state and local taxes? That deduction serves a purpose not entirely dissimilar to the purpose of allowing tax-exempt muni bonds. And so on.
To be sure, there are some second order effects of having an adjusted gross of $0, e.g., eligibility for certain low-income tax breaks that people with large amounts of tax-exempt income arguably shouldn't really be getting, but I would say that's a problem with the eligibility rules for those breaks; we don't need a whole separate tax code to fix this.