AMT “INDEXING” IS NOW PERMANENT
No More Annual Scramble for a “Patch”
by Daniel J. Pilla
One of the maddening things about tax policy in the past eleven years was Congress’s unwillingness to permanently index the Alternative Minimum Tax (AMT) exemption levels to inflation. For more than a decade, Congress merely passed an annual last minute “patch,” which simply extended the temporary rules for just one more year. All that time, Congress seemed unwilling to fix the problem in a manner that would have permanently removed the Sword of Damocles from over the heads of middle-income taxpayers. See my article in the December 2012 issue of PTT, page 7, which points out that millions of citizens would have been hit hard by Congress’s failure to index the AMT exemptions to inflation.
Finally, a provision of the American Taxpayer Relief Act of 2012 does exactly that. As a result of the Act, the 2012 AMT exemptions are now fixed as follows:
Joint returns or surviving spouse $78,750
Single person $50,600
Married filing separate $39,375
Beginning in 2013, these amounts are indexed for inflation so will increase every year, along with all of the many other provisions of the tax code that have been indexed for decades. The new Act also allows all nonrefundable personal credits to apply equally to the regular tax and the AMT.
This indexing will finally bring to an end the annual year-end scramble by Congress to pass a patch, all the while playing “chicken” with the IRS and taxpayers alike. Even the IRS was a victim in Congress’s madness because it had to make massive last-minute computer programming changes to accommodate the AMT rules. This year, with the after-the-last-minute passing of the American Taxpayer Relief Act, the IRS announced that it must delay the opening of tax return filing season until February 1, 2013 to facilitate the programming changes.
While permanently indexing the AMT’s exemptions to inflation certainly is a positive move, the fact remains that the AMT is a massively complicated mess that should not survive. The very existence of the AMT is a profound admission that our main tax system is badly flawed. Why not fix the flaws in the regular tax system and trash the AMT? Such a move would make tax compliance, administration and enforcement much easier and less expensive, and would help to remove the public’s pervasive impression that our tax system is fundamentally unfair. From there, the next step is fundamental tax reform that will abolish the income entirely.