The Alternative Minimum Tax For Individuals: Legislative Activity in the 110th Congress
Order Code RL34382
The Alternative Minimum Tax For Individuals:
Legislative Activity in the 110th Congress
February 19, 2008
Steven Maguire
Specialist in Public Finance
Government and Finance Division
Jennifer Teefy
Information Research Specialist
Knowledge Services Group
The Alternative Minimum Tax For Individuals:
Legislative Activity in the 110th Congress
Summary
The alternative minimum tax (AMT) for individuals was originally enacted to
ensure that all taxpayers, especially high-income taxpayers, pay 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 expired at the end of 2006. In the last two months
of 2007, legislative activity intended to “fix” the AMT intensified.
On November 9, 2007, the House approved H.R. 3996, legislation that, among
other things, would set the 2007 AMT exemption levels at $66,250 for joint returns
and $44,350 for single returns. In addition, this bill would allow nonrefundable
personal tax credits to offset AMT tax liability for 2007. The House-passed
legislation included revenue offsets for the AMT patch and the other tax cut
extenders included in the bill. On December 6, 2007, the Senate passed its version
of H.R. 3996 that included only the one-year patch for the AMT with no revenue
offsets or other tax cut extenders.
On December 12, 2007, the House approved H.R. 4351, legislation that sets the
AMT exemptions at the same levels as H.R. 3996, but does not include the other tax
cut extenders. H.R. 4351 includes revenue offsets similar, but not identical to, those
in H.R. 3996. On December 19, 2007, the House passed the Senate-amended version
of H.R. 3996 (P.L. 110-166, enacted on December 26, 2007), which did not include
revenue offsets or tax extenders.
The AMT exemption amounts for the 2008 tax year revert to $45,000 for joint
filers and $33,750 for single filers. Without a patch, roughly 26 million taxpayers
will be affected by the AMT in 2008. The Administration’s FY2009 budget includes
an AMT patch for the 2008 tax year and would allow all personal credits against
AMT liability.
This report will be updated as legislative action warrants.
Contents
Legislative Action in the 109th Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Legislative Action in the 110th Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Administration’s Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
List of Tables
Table 1. Votes on the 2007 Patch for the Alternative Minimum Tax
in the First Session of the 110th Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Table 2. Other AMT Legislation in the 110th Congress . . . . . . . . . . . . . . . . . . . . 5
The Alternative Minimum Tax For
Individuals: Legislative Activity in the 110th
Congress
In 1969, after a number of high-visibility television, magazine, and news stories
about a relatively small number of extremely wealthy individuals who paid virtually
no income taxes, the alternative minimum tax (AMT) for individuals was enacted to
ensure that all taxpayers pay at least a minimum amount of federal taxes.1 It was
designed so that individuals could not take unfair advantage of the various
preferences and incentives under the regular income tax to substantially reduce their
regular income tax liability below what was considered appropriate for their income
level. The AMT functions as a parallel tax system to the regular income tax.
Taxpayers calculate their regular income tax and then calculate their AMT. If their
AMT liability is larger than their regular income tax liability, then they pay the AMT.
There is to be a significant increase in the number of middle- to upper-middle-
income taxpayers affected by the AMT in the near future. In 2006, about 4.2 million
taxpayers were subject to the AMT. If not for the patch provided in P.L. 110-166,
enacted on December 26, 2007, up to 23 million taxpayers would have been subject
to the AMT in 2007.2 For the 2008 tax year, 25.7 million taxpayers are projected to
be affected by the AMT absent congressional action.3
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 reduced 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.4
1 There is also a corporate minimum tax, but it is not addressed in this report.
2 U.S. Congress. Joint Committee on Taxation. Present Law and Background Relating to
the Individual Alternative Minimum Tax, JCX-38-07, June 25, 2007.
3 Joint Committee on Taxation, June 25, 2007.
4 For more detailed information on which taxpayers will be affected by the AMT, see CRS
Report RS21817, The Alternative Minimum Tax (AMT): Income Entry Points and “Take
Back” Effects, by Gregg Esenwein; CRS Report RS22200, The Potential Distribution
Effects of the Alternative Minimum Tax, by Gregg Esenwein and Steven Maguire; and CRS
Report RS22083, Alternative Minimum Taxpayers By State: 2003, 2004, and Projections
(continued...)
CRS-2
Since 1998, the effects of the AMT have been mitigated through temporary
provisions allowing certain personal tax credits to offset AMT liability and temporary
increases in the basic exemption for the AMT. The Tax and Trade Relief Extension
Act of 1998 allowed taxpayers to use nonrefundable personal tax credits in full
against their regular income tax even though the use of the credits might reduce a
taxpayer’s regular income tax liability below their AMT liability.
The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA)
temporarily increased the AMT exemption amounts from $45,000 to $49,000 for
joint returns and from $33,750 to $35,750 for unmarried individuals with the changes
effective for tax years between 2001 and 2004.
The Job Creation and Worker Assistance Act of 2002 extended the temporary
provisions, first enacted in 1998 and then extended in 1999, that allowed individuals
to use all personal tax credits against both their regular and AMT tax liabilities. This
change was effective through December 31, 2003.
The Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA)
increased the basic AMT exemption amount to $58,000 for joint returns and to
$40,250 for unmarried taxpayers. These increases were in effect for tax years 2003
and 2004. JGTRRA also established that the new maximum tax rate of 15%
applicable to capital gains and dividend income under the regular income tax would
also apply to the taxation of capital gains and dividend income under the AMT.
The Working Families Tax Relief Act of 2004 (WFTRA) extended through
2005 JGTRRA’s increase in the basic AMT exemption amounts. WFTRA also
extended the provision allowing nonrefundable personal tax credits to offset both
regular and AMT tax liability in full for taxable years 2004 and 2005.
The American Jobs Creation Act of 2004 made several changes to the AMT.
It coordinated farmer and fisherman income averaging with the AMT so that the use
of income averaging did not push taxpayers into the AMT. It repealed the 90%
limitation on the use of the AMT foreign tax credit. The act also allowed the credits
for alcohol used as a fuel and electricity produced by renewable resources to be used
in full against the AMT.
Legislative Action in the 109th Congress
In May 2006, Congress approved the Tax Increase Prevention and
Reconciliation Act of 2005 (TIPRA) that included a one-year extension (through
2006) of both the AMT’s personal-credit and increased-exemption provisions. For
2005, the exemption amount was $58,000 for joint returns and $40,250 for unmarried
taxpayers. TIPRA increased the 2006 AMT exemption to $62,550 for joint returns
and $42,500 for unmarried taxpayers. According to estimates by the Joint
Committee on Taxation, the one-year cost of these AMT provisions was $33.9
billion.
4 (...continued)
for 2007, by Gregg Esenwein and Steven Maguire.
CRS-3
In December 2006, Congress passed the Tax Relief and Health Care Act of
2006. This act included a provision making the AMT tax credit refundable. Under
the act, taxpayers can claim an AMT refundable credit amount that is the greater of
(1) the lesser of $5,000 or the unused minimum credit, or (2) 20% of the unused
minimum credit. The unused credit is the credit attributable to tax years prior to the
previous three years. The AMT refundable credit is reduced for taxpayers with
adjusted gross incomes in excess of certain threshold amounts. (For joint returns in
2007, the threshold is $234,600). This provision applies to tax years beginning before
January 1, 2013.
Legislative Action in the 110th Congress
The U.S. Troop Readiness, Veterans’ Care, Katrina Recovery, and Iraq
Accountability Appropriations Act of 2007 (H.R. 2206) was enacted on May 25,
2007, and allowed the tax credits for the work opportunity credit and the credit for
taxes paid with respect to employee cash tips to be used in full against both the
corporate and individual alternative minimum taxes. The Tax Increase Prevention
Act of 2007 (P.L. 110-166), enacted on December 26, 2007, set the AMT exemption
levels at $66,250 for joint filers and $44,350 for single filers and allows
nonrefundable personal credits to offset AMT liability. Table 1 presents an
abbreviated chronology of the legislative action resulting in the AMT patch (P.L.
110-166) for the 2007 tax year. Table 2 summarizes all legislative proposals
affecting the AMT introduced in the 110th Congress.
Table 1. Votes on the 2007 Patch for the Alternative Minimum
Tax in the First Session of the 110th Congress
Vote Description and Result
Date
Vehicle
Vote
(D: Democrat; R: Republican; I: Independent)
5/17/2007
S.Con.Res. 21 House
Fiscal 2008 Budget Resolution - Conference Report
Vote 377
Among other things, this resolution called for a one-year
patch for the AMT.
Adopted (thus sent to the Senate) by a vote of 214-209: R
0-196; D 214-13
5/17/2007
S.Con.Res. 21
Senate
Fiscal 2008 Budget Resolution - Conference Report
Vote 172
Among other things, this resolution called for a one-year
patch for the AMT.
Adopted by a vote of 52-40: R 2-40; D 48-0; I 2-0.
5/17/2007
H.R. 2206
Senate
U.S. Troop Readiness, Veterans’ Care, Katrina Recovery,
Vote
and Iraq Accountability Appropriations Act, 2007.
P.L. 110-28
Among other things, this legislation included a waiver of
individual and corporate AMT limits on the work
opportunity tax credit and credit for taxes paid with respect
to employee cash tips.
Passed Senate by voice vote.
CRS-4
Vote Description and Result
Date
Vehicle
Vote
(D: Democrat; R: Republican; I: Independent)
11/1/2007
H.R. 3996
Committe
Temporary Tax Relief Act/Vote to Report.
e Vote
The bill would allow taxpayers to apply nonrefundable
personal credits against the AMT in 2007. The bill would
also increase the AMT exemption amount to $66,250 for
joint filers and $44,350 for individuals. These provisions
provided for a one-year patch for the AMT. The bill also
extended several expiring tax provisions for one year. The
bill expanded the eligibility for the refundable child tax
credit by setting the threshold for the credit at $8,500. To
offset the cost of the measure, the bill included provisions
intended to raise revenue, such as taxing the carried interest
of private equity managers, venture capitalists and some real
estate investors up to 35% instead of the current 15%.
Reported favorably to the full House (as amended) 22-13: R
0-13; D 22-0; I 0-0.
11/9/2007
H.R. 3996
House
Alternative Minimum Tax Adjustment — Passage.
Vote
The bill provided a one-year patch for the AMT. It also
1081
extended several expiring tax provisions for one year. The
bill expanded the eligibility for the refundable child tax
credit by setting the threshold for the credit at $8,500. To
offset the cost of the measure, the bill included provisions
intended to raise revenue, such as taxing the carried interest
of private equity managers, venture capitalists and some real
estate investors up to 35% instead of the current 15%.
Passed 216-193: R 0-185; D 216-8.
12/6/2007
H.R. 3996
Senate
Alternative Minimum Tax Adjustment — Cloture.
Vote 414
Motion to invoke cloture (thus limiting debate) on the Reid,
D-Nev., motion to proceed with a vote on H.R. 3996 as
passed by the House.
Motion rejected 46-48: R 0-47; D 44-1; I 2-0.
12/6/2007
H.R. 3996
Senate
Alternative Minimum Tax Adjustment — Passage.
Vote 415
Passage of a one-year AMT patch. Before passage, the
S.Amdt. 3804
Senate adopted by voice vote the Baucus, D-Mont.,
substitute amendment no. 3804 that dropped the tax offsets
and other non-AMT tax reduction extenders contained in the
House bill.
Passed 88-5: R 46-0; D 40-5; I 2-0.
12/12/2007
H.R. 4351
House
Alternative Minimum Tax Adjustment — Passage.
Vote
Passage of the bill that would provide a one-year patch for
1153
the AMT in 2007. In addition, the bill would expand the
eligibility in 2008 for the refundable child tax credit by
setting the threshold for the credit at $8,500. The other tax
cuts included in the original bill passed by the House on
Nov. 9 were dropped from this bill. To offset the costs of
the AMT patch, the bill would limit a number of tax breaks,
including the ability of taxpayers to use offshore
arrangements for deferred compensation by including it in
gross income and taxing it on a current basis.
Passed 226-193: R 0-190; D 226-3.
12/19/2007 H.R. 3996
House
Alternative Minimum Tax Adjustment — Passage.
Vote
Rangel, D-N.Y., motion to suspend the rules and concur with
Enacted
P.L. 110-166
1183
the Senate amendment (S.Amdt. 3804) to the bill that would
12/26/2007
provide a one-year patch for the AMT in 2007 without
offsets. The bill allows taxpayers to apply nonrefundable
personal credits against the AMT in 2007. The bill increases
the AMT exemption amount to $66,250 for joint filers and
$44,350 for individuals.
Motion agreed to, 352-64: R 195-0; D 157-64.
CRS-5
Table 2. Other AMT Legislation in the 110th Congress
Bill
Sponsor
Effect on AMT
S. 55
Sen. Max
Repeals the AMT effective for tax years after 2006.
Jan. 4, 2007
Baucus
Sen. Chuck
Grassley
S. 102
Sen. John
Increases the basic AMT exemption and allows personal tax credits to
Jan. 4, 2007
Kerry
offset AMT liability. Offsets part of the cost of these changes by
repealing, in 2009 and 2010, the lower tax rates on dividends and
capital gains income.
S. 590
Sen. Gordon
Allows the investment tax credit for solar energy property and qualified
Feb. 14, 2007
Smith
fuel cell property against the AMT.
S. 614
Sen. Charles
Increases the basic AMT exemption for tax years 2007 and 2008.
Feb. 15, 2007
Schumer
Permits personal tax credits to offset AMT liabilities.
S. 734
Sen. Arlen
Reduces the AMT tax rate to 24%.
Mar. 1, 2007
Specter
S. 1040
Sen. Richard
Among other things, this bill repeals the AMT.
Mar. 29, 2007
Shelby
S. 1111
Sen. Ron
Among other things, this bill repeals the AMT.
Apr. 16, 2007
Wyden
S. 14
Sen. Jon Kyl
Repeals the AMT effective in 2007.
Apr. 17, 2007
S. 1405
Sen. Sam
Repeals the individual AMT effective in 2008.
May 16, 2007
Brownback
S. 1851
Sen. Jeff
Indexes the AMT for inflation and allows personal exemptions under
July 23, 2007
Sessions
the AMT.
S. 1855
Sen. Chuck
Provides relief from penalty for failure to pay estimated taxes
July 23, 2007
Grassley
attributable to the AMT.
S. 1875
Sen. Jim
Repeals the AMT effective in 2007.
July 25, 2007
DeMint
H.R. 370
Rep. Geoff
Allows certain coal to liquid fuel tax credits to be applied against the
Jan. 10, 2007
Davis
AMT.
H.R. 550
Rep. Michael
Allows the investment tax credit for solar energy property and qualified
Jan. 18, 2007
McNulty
fuel cell property against the AMT.
H.R. 1112
Rep. Thomas
Increases the basic AMT exemption to $66,400 for joint returns and
Feb. 16, 2007
Reynolds
$45,100 for unmarried taxpayers.
Allows personal tax credits to offset AMT liabilities in full.
H.R. 1366
Rep. Phil
Repeals the AMT starting in 2007.
Mar. 7, 2007
English
H.R. 1591
Rep. David
Makes permanent the allowance for the work opportunity tax credit and
Mar. 20, 2007
Obey
the credit for taxes paid with respect to employee tips to offset AMT
liability. Passed by the House and the Senate, but was vetoed by
President Bush on May 1, 2007.
H.R. 1869
Rep. Nydia
Repeals the AMT starting in 2008.
Apr. 17, 2007
Velázquez
H.R. 1923
Rep. Kevin
Increases and indexes the basic exemption for the AMT.
Apr. 18, 2007
McCarthy
Increases the point at which the basic exemption is phased-out.
H.R. 1942
Rep. Scott
Allows deductions for state and local taxes against AMT.
Apr. 19, 2007
Garrett
Indexes the basic AMT exemption.
H.R. 2253
Rep. Edward
Reduces the AMT tax rate to 24%.
May 9, 2007
Royce
CRS-6
Bill
Sponsor
Effect on AMT
H.R. 2318
Rep. Robert
Allows state and local property taxes to be deducted from the AMT tax
May 15, 2007
Andrews
base.
H.R. 2691
Rep. Timothy
Allows the tax credit for electricity produced from wind facilities
June 12, 2007
Walz
against the AMT.
H.R. 2748
Rep. Rodney
Allows the alternative motor vehicle tax credit against the AMT.
June 15, 2007
Frelinghuysen
H.R. 2776
Rep. Charles
Allows certain energy tax credits against the AMT.
June 27, 2007
Rangel
H.R. 2902
Rep. Thomas
For 2007 and 2008, increases the AMT exemption and allows all
June 28, 2007
Allen
personal tax credits against the AMT.
H.R. 2983
Rep. Anthony
Eliminates the AMT for taxpayers with adjusted gross incomes (AGIs)
July 10, 2007
Weiner
under $100,000 for unmarried taxpayers and $200,000 for married
taxpayers.
H.R. 3486
Rep. Brad
Creates new mine safety credit, revises the credit for mine rescue team
Sept. 6, 2007
Ellsworth
training, and allows these credits against the AMT.
H.R. 3726
Rep. Baron
Allows real property tax on the principal residence to be deducted by
Oct. 2, 2007
Hill
non-itemizers and allows this deduction against the AMT.
H.R. 3590
Rep. Nick
Extends the AMT tax relief provisions through 2007.
Sept. 19, 2007
Lampson
H.R. 3818
Rep. Paul
Repeals the AMT. Allows taxpayers to pay their regular income tax or
Oct. 10, 2007
Ryan
pay taxes under a new simplified tax system.
H.R. 3861
Rep. Chris
Increases the AMT refundable credit amount for individuals with
Oct. 16, 2007
Van Hollen
unused credits for prior years minimum tax liability.
H.R. 3953
Rep. Tim
Allows a deduction for property taxes in the determination of AMT
Oct. 24, 2007
Mahoney
taxable income.
H.R. 3970
Rep. Charles
Among other things, for 2007, this bill would provide for
Oct. 25, 2007
Rangel
increased/indexed AMT exemption amounts and would allow
nonrefundable personal credits to offset AMT liabilities. For years
after 2007, the AMT would be repealed as part of a fundamental
restructuring of the individual and corporate tax systems.
H.R. 3996
Rep. Charles
Among other things, this bill allows nonrefundable personal tax credits
Oct. 30, 2007
Rangel
to offset AMT tax liability and increases the AMT exemption amounts
to $66,250 for joint returns and $44,350 for single returns. These
changes would be effective for one year, 2007.
H.R. 4351
Rep. Charles
Among other things, this bill allows nonrefundable personal tax credits
Dec. 11, 2007
Rangel
to offset AMT tax liability and increases the AMT exemption amounts
to $66,250 for joint returns and $44,350 for single returns. These
changes would be effective for one year, 2007.
H.R. 5031
Rep. Thomas
Amends the Internal Revenue Code to extend relief from the alternative
Jan. 17, 2008
M. Reynolds
minimum tax. Extends the increased alternative minimum tax
exemption amount beginning in 2008, and the alternative minimum tax
relief for nonrefundable personal credits beginning in 2008.
H.R. 5105
Rep. David
Indexes alternative minimum tax amounts for inflation beginning in tax
Jan. 23, 2008
Dreier
year 2008.
S.Con.Res. 21
n/a
House and Senate adopted the FY2008 budget resolution. The
May 17, 2007
resolution calls for a one-year patch for the AMT.
S. 2293
Sen. Trent
Among other things, this bill would repeal the individual AMT.
Nov. 1, 2007
Lott
S. 2318
Sen. John
Among other things, this bill would repeal the individual AMT.
Nov. 7, 2007
Ensign
S. 2389
Sen. John
This bill would increase the amount of the AMT refundable credit from
Nov. 16, 2007
Kerry
20% to 50% and remove the income phaseouts for the credit.
CRS-7
Bill
Sponsor
Effect on AMT
S. 2416
Sen. Jim
Repeals the current AMT and replaces it with an alternative tax that
Dec. 5, 2007
DeMint
taxpayers have the option to pay instead of their regular income tax.
S. 2517
Sen. Gordon
Amends the Internal Revenue Code to exempt tax-exempt interest on
Dec. 18, 2007
H. Smith
qualified mortgage or veterans’ mortgage bonds issued before 2011
from the alternative minimum tax.
S. 2547
Sen.
Indexes alternative minimum tax amounts for inflation beginning in tax
Jan. 23, 2008
Christopher
year 2008.
S. Bond
Administration’s Proposals
The Administration’s FY2009 budget proposal includes a one-year patch for the
AMT. The Administration’s proposal would increase the basic AMT exemption to
$70,050 for joint returns and $46,250 for unmarried taxpayers. It would also allow
all nonrefundable personal tax credits to offset AMT liability in full. These changes
would be effective for 2008 only. The estimated federal revenue loss from this
proposal is $58.4 billion for the FY2008 to FY2010 budget window.