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I would like to make four main points:

The fundamental reason for the spread of the AMT is that the exemption amount has never been indexed to inflation. As a result, the AMT spread rapidly before the 2001 and 2003 tax laws were adopted, it would have continued spreading without those laws, and it is projected to spread further after 2010 even if those laws sunset. The 2001 and 2003 tax laws, in combination with other tax legislation adopted in 2001 through 2006, slowed the AMT spread in those years, but will accelerate the spread in 2007 through 2010. Taxpayers who move onto the AMT in 2007 through 2010 due to the 2001 and 2003 tax laws still enjoy a net tax cut from those laws. The spread of the AMT exposes more taxpayers to an ill-designed tax system.

AMT Exemption Amount Has Never Been Indexed for Inflation

The basic design of the AMT has remained largely unchanged since 1987, when the provisions of the Tax Reform Act of 1986 (enacted October 22, 1986) took effect. At that time, the exemption amount was $40,000 ($30,000 for unmarried taxpayers). No automatic inflation adjustment was provided for the AMT exemption, even though the regular tax brackets and exemption amounts were and are adjusted for inflation.

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Alan D. Viard is a resident scholar at AEI.