Many Americans’ first time hearing of the Alternative Minimum Tax (AMT) may have been last March, when a partial tax return showed that it was chiefly responsible for the taxes Trump owed in 2005. Now, only 200,000 filers will be required to pay the tax, which is significantly fewer than the over 5 million who qualified before the Republican tax scam passed in December.
So what exactly is the AMT? In the simplest of terms, the tax ensures that no one is able to use the various loopholes and deductions in the flawed federal system in an attempt to pay disproportionately less in taxes. It was introduced in 1969 after Congress discovered that in 1966 155 would-be taxpayers avoided paying taxes on incomes over $200,000. Adjusted for inflation, their incomes equal approximately $1.5 million in 2017. Congress received more complaints about the tax-dodgers than the Vietnam War the year they passed the first version of the alternative minimum tax.
Last year, Trump and his allies were working overtime to repeal the AMT, a tax responsible for the majority of money the president pays in taxes, according to his 2005 tax return, the only form available for scrutiny. It showed that AMT accounted for $31 million of the $38 million the president owed the IRS. Otherwise he would have owed only $7 million. Even with AMT the president paid taxes at a rate of only 25% that year, a lower tax rate than that paid by citizens making $91,900.
While the Republican tax bill that became law in December did not succeed in repealing the alternative minimum tax, lobbyists were successful in getting the qualifying threshold raised slightly, approximately $4,000 for couples, and $3,000 for individuals, with minimum qualifying incomes starting at $191,500 and $95,750, respectively. However the AMT phase-out thresholds were increased dramatically to $1 million and $500,000, respectively, more than double the 2017 thresholds. The AMT tax rate is only 28%, but the higher phase-out threshold allows high income earners to avoid the effective higher 37% tax rate for AMT incomes between the qualifying income on the phase-out threshold.
In the president’s case, the AMT did it’s job. It prevented a very wealthy person from paying less than 5% in taxes or avoiding taxes entirely through deductions and credits. It has also been a large source of tax revenue for the federal government. The raising of the threshold does not disqualify Trump, who purports to be a billionaire, but it is clearly a missed opportunity at raising the rate, and lowering the threshold to require more citizens to pay their fair share.
Although it has been nearly three months after the tax bill raised the threshold for qualifying for the tax, Americans have not forgotten that the president stands to save an enormous amount of money because of his party’s lobbying. In fact, two-thirds of voters believe Trump should release his tax returns, with 52% of those polled saying they believe Trump is not releasing his returns because he is hiding something.
While the public’s demands for Trump’s tax returns is not new, it’s evidence that Americans do not want the President of the United States weakening tax legislation in order to benefit financially. These changes will dramatically limit the number of individuals impacted by the AMT over the next decade. All told, the Joint Committee on Taxation estimated that these changes would reduce federal revenues by $637.1 billion over the next decade, compared to current law.
Representatives on both sides of the aisle could have worked on fixing the AMT to make it more effective and unavoidable. Rather, Republicans raised the thresholds, taking the easy way out and appeasing their donors.