Alternative Minimum Tax

[Schneed10]

Essentially, a long time ago in a galaxy far away, when $150,000 was a buttload of money for an American household, the Alternative Minimum Tax rule was put in place to ensure that families making over $150,000 couldn't get out of their fair share of taxes by taking credits and deductions for things like capital gains losses.

Essentially, the Alternative Minimum Tax says OK, go ahead and do your tax return. Figure out how much tax you should pay, based on all the credits and deductions you're eliglbe for. Got it? OK, now if you make over $150,000K as a household, forget that first calculation, we're going to make you pay at least X amount, because you make enough money, you should be paying up a good amount of tax. The X amount is determined by Alternative Minimum Tax.

It was a good idea at the time. I'm not sure when it was put into place, but basically, household income of $150,000 was worth a ton more than it is today. The $150,000 threshold was never indexed to inflation, meaning that as time went along, the $150,000 threshold never increased.

So naturally, as inflation runs its course, more and more families are subjected to AMT who never would have been when the rule was put into place. Certainly nobody should feel sorry for families making $150,000, but because of AMT they now pay an unfairly disproportionate share of taxes.