Alternative Minimum Tax - History

History

A predecessor Minimum Tax was enacted by the Tax Reform Act of 1969 and went into effect in 1970. Treasury Secretary Joseph Barr prompted the enactment action with an announcement that 155 high-income households had not paid a dime of federal income taxes. The households had taken advantage of so many tax benefits and deductions that reduced their tax liabilities to zero. Congress responded by creating an add-on tax on high-income households, equal to 10% of the sum of tax preferences in excess of $30,000 plus the taxpayer's regular tax liability.

The explanation of the 1969 Act prepared by Congress's Staff of the Joint Committee on Internal Revenue Taxation described the reason for the AMT as follows:

"The prior treatment imposed no limit on the amount of income which an individual or corporation could exclude from tax as the result of various tax preferences. As a result, there were large variations in the tax burdens placed on individuals or corporations with similar economic incomes, depending upon the size of their preference income. In general, those individual or corporate taxpayers who received the bulk of their income from personal services or manufacturing were taxed at relatively higher tax rates than others. On the other hand, individuals or corporations which received the bulk of their income from such sources as capital gains or were in a position to benefit from net lease arrangements, from accelerated depreciation on real estate, from percentage depletion, or from other tax-preferred activities tended to pay relatively low rates of tax. In fact, many individuals with high incomes who could benefit from these provisions paid lower effective rates of tax than many individuals with modest incomes. In extreme cases, individuals enjoyed large economic incomes without paying any tax at all. This was true for example in the case of 154 returns in 1966 with adjusted gross incomes of $200,000 a year (apart from those with income exclusions which do not show on the returns filed). Similarly, a number of large corporations paid either no tax at all or taxes which represented very low effective rates."

The AMT has undergone several changes since 1969. The most significant of those, according to the Joint Committee on Taxation, occurred under the Reagan era Tax Equity and Fiscal Responsibility Act of 1982. The law changed the AMT from an add-on tax to its current form: a parallel tax system. The current structure of the AMT reflects changes that were made by the 1982 law. However both participation and revenues from the AMT temporarily plummeted after the 1986 changes. Congress made other notable, but less significant, changes to the law in 1978, 1982, and 1986.

Further significant changes occurred as a result of the Omnibus Budget Reconciliation Acts of 1990 and 1993, which raised the AMT rate to 24% from the prior level of 21% and then to 26% for singles and 28% for married couples, respectively. Now, some taxpayers who do not have very high incomes or participate in numerous special tax benefits and/or activities will pay the AMT.