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Louis Jacobson
By Louis Jacobson January 2, 2013
Molly Moorhead
By Molly Moorhead January 2, 2013

Congress permanently indexes the AMT for inflation

In passing a tax bill to forestall the "fiscal cliff" -- the overnight rise of a wide array of taxes combined with deep spending cuts -- lawmakers agreed to permanently index the Alternative Minimum Tax for inflation.

The AMT, as it is commonly known, it is a separate income tax calculation that was intended to ensure that wealthy people did not use loopholes to avoid paying taxes. Once a taxpayer reaches a certain income level, they need to pay the amount calculated under the AMT even if the deductions and exemptions available under in the regular tax code would otherwise allow them to pay less in tax.

But the AMT, unlike the standard tax code, was not indexed for inflation. So, every year, more and more Americans hit the threshold and found themselves owing higher taxes. As a result, the AMT was increasingly becoming a burden on the middle class, or at least the upper-middle class, rather than the rich.

In recent years, lawmakers have "patched" the AMT in a way that kept it from hitting many non-wealthy taxpayers. But this produced regular headaches for lawmakers.

The fiscal cliff bill, passed by the House and Senate on Jan. 1, 2013, ends the need to regularly patch the AMT by permanently indexing the AMT for inflation. We rate this a Promise Kept.

Our Sources

Angie Drobnic Holan
By Angie Drobnic Holan February 17, 2009

Alternative Minimum Tax patch is in the stimulus bill

During the presidential campaign, Barack Obama and Republican nominee John McCain promised they would extend and index for inflation a "patch" to fix the Alternative Minimum Tax.

Commonly called the AMT, it is a separate income tax that was intended to ensure that wealthy people did not use loopholes to avoid paying taxes. If you reach a certain minimum income level, you have to pay this tax regardless of your deductions and exemptions.

The trouble is that the AMT, unlike the standard system, is not indexed for inflation. More and more people have hit the threshold, and when they do they end up paying higher taxes. Increasingly, the AMT is becoming a burden for the middle class.

Resolving the issue permanently will be expensive and increase the federal deficit. To avoid that, Congress has been finding money every year to "patch" the AMT and exempt middle-income tax payers from its reach.

During the campaign, both Obama and McCain said they would continue to patch the AMT so that middle-income people would not have to pay it.

During negotiations on the bill that would become The American Recovery and Reinvestment Act of 2009, the AMT patch was added in the Senate, where the bill needed Republican support to overcome a threat of filibuster. (Three Republican senators ultimately joined Democrats in voting for the bill.)

The AMT patch may not have been as high-profile as some of Obama's other promises, but he made the pledge, and it was in the bill. Promise Kept.

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