Technically, there is no such thing as an “alternative basic tax”, instead this is term that is sometimes used by people referring to the Alternative Minimum Tax (AMT). According to companies like RG Brenner, the AMT was initially implemented in 1969 because many high-income households qualified for so many tax benefits (deductions, exemptions, and deferrals) that they were paying virtually no income taxes despite making some of the highest incomes in the country. Since 1969 the AMT has underwent a wide range of reforms and adjustments and the AMT of today is largely the product of the Tax Equity and Fiscal Responsibility Act of 1982.
Effectively the AMT works like a flat tax of twenty-eight percent on an adjusted gross income (AGI) of over $175,000 as well as an additional twenty-six percent of the AGI under $175,000 after exemptions. Despite claims to the contrary, the AMT is not particularly more complicated than a standard Form 1040 filing, though the deductions and exemptions reflected on the AMT’s Form 6251 are different. The real matter of complexity stems from the fact that people wealthy enough to fall under the provisions of the AMT have to perform double the amount of tax preparation: they have to complete a normal 1040 filing as well as the 6251 filing, and they owe which ever of these are the highest.
The real problem with the AMT is that it is not indexed to inflation and has no adjustment mechanism to take into account regular tax decreases. This leads to “bracket creep”, where inflation gradually pushes people into higher tax brackets over time. Since inflation has steadily increased and regular taxes have decreased, and ever increasing number of people in the United States is gradually falling into the range of the AMT. While all parties generally agree that this is a problem, the ideas of how to reform – or even repeal – the AMT differ widely and has resulted in a stalemate preventing comprehensive reform. In the meantime, Congress annually passes one year patches designed to mitigate the effects of the AMT on the public.
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