Why Is the Impact of the AMT Increasing Over Time?
Two factors are spurring the growth that is occurring in the number of taxpayers affected by the AMT. First, unlike the parameters of the regular tax, the parameters of the AMT are not indexed for inflation. Under the regular tax, the personal exemption, standard deduction, and rate brackets are all indexed, which prevents tax rates from rising when incomes just keep pace with inflation. By contrast, the parameters of the AMT–the exemption and rate brackets–are not indexed. Over time, taxpayers face higher tax rates under the AMT, even if their incomes grow only at the pace of overall price rises. Because inflation boosts tax rates under the AMT but does not raise rates under the regular income tax, as prices rise, a greater number of taxpayers will owe more under the AMT than under the regular tax. In addition, the effects of inflation on the AMT accumulate over time. CBO estimates that if current law remained in effect, 70 percent of taxpayers in 2050 would be affected by the AMT,
