Order Code RS22100
Updated July 7, 2005
CRS Report for Congress
Received through the CRS Web
The Alternative Minimum Tax for Individuals:
Legislative Initiatives and Their Revenue
Effects
Gregg Esenwein
Specialist in Public Finance
Government and Finance Division
Summary
The alternative minimum tax (AMT) for individuals was originally enacted to
ensure that all taxpayers, especially high-income taxpayers, paid at least a minimum
amount of federal taxes. However, the AMT is not indexed for inflation, and this factor,
combined with the recent reductions in the regular income tax, has greatly expanded the
potential impact of the AMT.
Temporary provisions intended to mitigate the effects of the AMT expire at the end
of 2005. If this occurs, then the number of taxpayers subject to the AMT will increase
from 3 million in 2004 to 21 million in 2006. The Congressional Budget Office
estimates that extending and indexing the 2006 AMT parameters would reduce federal
revenue by $191 billion over the next five years.
The conference agreement on the 2006 budget resolution, H.Con.Res. 95, contained
$106 billion in tax relief over the next five years, $70 billion of which would be
protected through the reconciliation process. Under reconciliation, $11 billion of tax
relief is allocated for 2006. The budget resolution, however, would not provide enough
tax relief to hold the AMT harmless over the next five years. To date, seven stand-alone
bills (S. 1103, H.R. 206, H.R. 703, H.R. 1186, H.R. 1538, H.R. 1599, and H.R. 2987)
modifying the AMT have been introduced in the 109th Congress. The Administration
did not include modifications to the AMT in its FY2006 budget proposal.
This report will be updated as legislative action warrants.
The alternative minimum tax (AMT) for individuals was originally enacted to ensure
that all taxpayers, especially high-income taxpayers, paid at least a minimum amount of
federal taxes.1 However, absent legislative action, there will be a significant increase in
the number of middle- to upper-middle-income taxpayers affected by the AMT in the near
1 There is also a corporate minimum tax, but it is not addressed in this report.
Congressional Research Service { The Library of Congress

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future. In 2004, about 3 million taxpayers were subject to the AMT, but by 2006, up to
21 million taxpayers could be subject to the AMT.
There are two main reasons for the increase in the number of taxpayers affected by
the AMT. First, the regular income tax is indexed for inflation, but the AMT is not. Over
time this has produced a reduction in the differences between regular income tax
liabilities and AMT liabilities at any given nominal income level, differences that will
continue to shrink in the absence of AMT indexation. The second reason is that the 2001
and 2003 reductions in the regular income tax have further narrowed the differences
between regular and AMT tax liabilities. The combination of these two factors means
that, absent legislative changes, there will be significant growth in the number of
taxpayers affected by the AMT.2
The effects of the AMT have been temporarily mitigated through an increase in the
basic exemption for the AMT. For 2005, the AMT exemption is $58,000 for joint returns
and $40,250 for unmarried taxpayers. In 2006, the basic AMT exemption is scheduled
to decrease to $45,000 for joint returns and $35,750 for unmarried taxpayers.3
Revenue Effects of Modifying the AMT
The fact that the AMT is poised to affect so many taxpayers in the near future has
prompted calls to remedy the situation. Absent legislative action, the AMT will “take
back” much of the recently enacted reductions in the regular income tax for millions of
taxpayers. Because personal exemptions are not allowed against the AMT, large families
will be particularly susceptible to the AMT. In addition, since deductions for state/local
taxes are not allowed against the AMT, taxpayers who itemize and deduct these taxes on
their regular income tax returns are also likely to be adversely affected by the AMT.
However, modifications to the AMT will prove costly in terms of forgone revenue.
When discussing the long-run (beyond 2010) revenue implications of modifying the
AMT, it is critical to specify whether it is assumed that the 2001/2003 tax cuts are
allowed to expire after 2010 as scheduled or whether it is assumed that the tax cuts are
extended beyond 2010. Allowing the 2001 tax cuts to expire as scheduled will reduce the
costs of modifying the AMT. If the tax cuts are extended beyond 2010, then the costs of
modifying the AMT will increase dramatically. Indeed, if the 2001/2003 tax cuts are
extended, then, as a rough estimate, the cost of most options for modifying the AMT will
almost double.
The revenue effects of several modifications to the AMT are shown in Table 1.
2 For more detailed information on the AMT see CRS Report RL30149, The Alternative
Minimum Tax for Individuals, by Gregg Esenwein.
3 For information on the income levels of taxpayers affected by the AMT in 2006, see CRS
Report RS21817, The Alternative Minimum Tax (AMT): Income Entry Points and “Take Back”
Effects, by Gregg Esenwein.

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Table 1. Revenue Costs of Modifying the AMT
(billions of dollars)
FY06-15
FY06-15
(2001
(2001 tax
Policy Option
FY06-10
tax cuts
cuts
expire)
extended)
Maintain higher AMT exemption level, index
$191a
$385c
$642d
exemption and bracket amounts
Allow AMT taxpayers to take personal exemptions
and either the standard deduction or deductions for
$282b
$530b
N/A
state/local taxes. (AMT basic exemption reverts to
prior law levels)
Extended higher AMT level through 2006
$30c
--
--
Allow personal exemptions under AMT
$176a
$343c
N/A
Allow state/local tax deductions under AMT
$228a
$423c
N/A
Repeal the AMT
$337a
$611c
$1,160e
a. Joint Committee on Taxation, Estimated Revenue Effects of Various AMT Options, May 17, 2005,
unpublished data that formed the basis for the ten-year estimates in the CBO testimony of May 23,
2005.
b. Congressional Budget Office, Budget Options, February 2005, p. 275.
c. Congressional Budget Office, CBO Testimony, The Individual Alternative Minimum Tax, May 23, 2005,
p. 8.
d. Congressional Budget Office, The Budget and Economic Outlook: Fiscal Years 2006 to 2015, January
2005, p. 8.
e. U.S. Department of the Treasury, Fact Sheet: The Toll of Two Taxes: The Regular Income Tax and the
AMT, March 2, 2005.
To keep the AMT from affecting more taxpayers in the out years than it will in 2005
would, at the least, require maintaining the higher exemption levels and indexing the
AMT for inflation. According to the Congressional Budget Office (CBO), this option,
which will almost hold the AMT “harmless,” will cost $191 billion over the first five
years. It will cost $385 billion over 10 years if the 2001/2003 reductions in the regular
income tax are allowed to expire as scheduled. If the 2001/2003 tax cuts are extended
beyond 2010, then this option would reduce revenues by $642 billion over 10 years.
CBO also estimates that allowing AMT taxpayers to take personal exemptions and
either the regular standard deduction or their itemized deductions for state/local taxes
would reduce revenues by $282 billion over the first five years and $530 billion over 10
years if the 2001/2003 tax cuts expire as scheduled. (A 10-year revenue estimate of this
policy option that includes the interactive effects of extending the 2001/2003 tax cuts is
not available.)
Repeal of the AMT would be the most expensive policy option. According to CBO,
repeal of the AMT would reduce federal revenues by approximately $337 billion over five
years and by $611 billion over 10 years if the tax cuts expire as scheduled. The Treasury

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Department estimates that if the 2001/2003 tax cuts are extended, then repealing the AMT
would reduce federal revenues by over a trillion dollars between FY2006 and FY2015.4
In fact, the Treasury Department has estimated that by 2013, it would be less expensive
to repeal the regular income tax than it would be to repeal the AMT.
Legislative Initiatives in the 109th Congress
On March 17, 2005, the House approved its FY2006 budget resolution, H. Con. Res.
95. The House resolution assumed $106 billion in tax reductions over the next five fiscal
years. Also on March 17, 2005, the Senate approved its budget resolution, S. Con. Res.
18. The Senate budget resolution assumed $134 billion in tax reductions over the
FY2006 to FY2010 period.
The conference agreement on the 2006 budget resolution, H.Con.Res. 95, was
approved by both chambers on April 28, 2005, and contained $106 billion in tax relief
over the next five years, $70 billion of which would be protected through the
reconciliation process. Under reconciliation, $11 billion of tax relief is allocated for
2006. Although the budget resolution does not identify specific changes to the tax code,
it does not provide enough tax relief to hold the AMT harmless over the five-year budget
horizon . Holding the AMT harmless would require extension and indexation of the
increased AMT exemption levels and extension of the provision allowing taxpayers to use
personal tax credits against the AMT5.
In addition to the budget resolution, seven stand-alone bills affecting the AMT have
been introduced in the 109th Congress.
S. 1103. Introduced on May 23, 2005, by Senators Baucus, Grassley, Wyden, Kyl,
Schumer, and Crapo. This bill would repeal the AMT for individuals effective for tax
years beginning after December 31, 2005.
H.R. 206. Introduced on January 4, 2005, by Representative José Serrano. This bill
would provide a business credit for the use of clean-fuel vehicles by businesses located
within designated areas. The credit would be allowed against both the regular income tax
and the AMT for both individuals and corporations.
H.R. 703. The Middle Class Fairness Act of 2005. Introduced February 9, 2005, by
Representative Scott Garrett. This bill would repeal the AMT limitation on the use of
state and local tax deductions. It would also index, beginning in 2005, the AMT
exemption amount for inflation.
4 These estimates do not include the additional cost that would arise through debt financing of
these policy options. These additional costs would be substantial. For instance, CBO estimates
that the cost of the debt service associated with maintaining the higher AMT exemption levels
and indexation of the AMT would be $132 billion over a 10-year period.
5 Effective in 2006, certain personal tax credits (for example, the dependent care credit, the
HOPE Scholarship and Lifetime Learning credit, and the D.C. homebuyer’s credit) cannot be
used to reduce a taxpayer’s regular income tax below their AMT liability.

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H.R. 1186. Alternative Minimum Tax Repeal Act of 2005. Introduced on March 9, 2005,
by Representative Phil English. This bill would repeal the AMT starting in 2006.
H.R. 1538. Introduced April 8, 2005, by Representative Steve Israel. Increases the AMT
exemption to $100,000 for joint returns and $75,000 for all other returns. Increases the
AMT exemption phase-out threshold. Indexes the AMT exemptions and phase-out
thresholds.
H.R. 1599. Introduced April 13, 2005, by Representative Jeb Bradley. Extends and
indexes the increased AMT exemption amounts through 2007.
H.R. 2987. Introduced June 20, 2005, by Representative Robert Andrews. Allows a
deduction for state and local income and property taxes under the AMT.
Revenue estimates for these specific legislative initiatives in the 109th Congress are
not available.
Administration’s Proposal
In its 2005 budget proposal, the Administration proposed a one-year extension for
both the increased AMT exemption levels and the provision allowing personal credits to
offset AMT tax liability. Both of these proposals were ultimately enacted as part of the
Working Families Tax Relief Act of 2004. The Administration also directed the Treasury
Department to study and to report back within a year, on long-term solutions to the AMT
problem.
In its 2006 budget proposal, the Administration did not address the AMT issue.
Subsequent statements by Secretary of the Treasury John Snow indicate that the AMT
issue is to be addressed by the tax reform panel appointed by the Administration.
Although the tax reform panel has not released its recommendations, it is expected that
any tax reform proposals will be revenue neutral. If the reform proposal is revenue
neutral, and if a long-term AMT solution is to be incorporated into the panel’s reform
proposal, then other taxes will have to increase by an amount at least equal to the revenue
cost of holding the AMT harmless under the current system. Hence, the reform proposal
will need to raise $198 to $642 billion over the next five to 10 years to cover the
minimum cost of fixing the AMT.

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