Bush's tax cut did make one seemingly minor adjustment to the AMT: it increased the AMT standard deduction by $2000 for single filers and $4000 for married couples. But interestingly, whereas most of the tax cut provisions are end-loaded, lasting through 2010 and increasing along the way, the AMT standard deduction increase ends after 2004. I ran some numbers last night. Here's what I conclude:

What would have happened: Without the AMT deduction increase, AMT would have gotten moderately worse in 2001 due to the tax cut, and gradually affected more and more taxpayers over the following years. It would have gently built up pressure as an impending problem, and at some point the AMT would have been "fixed" -- but with Senate procedural rules and in the absence of a national outcry, Democrats would have kept the fix fairly minimal, perhaps just indexing the AMT deductions to inflation at near-present levels.

What will happen instead: Through 2004, the AMT deduction increase will forestall AMT becoming a major political issue. It will still affect more and more taxpayers, but by 2004 will remain only a little worse than it was in 2000, when AMT was still marginally politically tolerable. Then, in 2005, all of a sudden all sorts of middle-class families will get hit, blam, with as much as $1000 AMT liability that they never had before. I found an estimate that between 2004 and 2005, the number of AMT payers will increase from 5.6 million to 13.4 million. Maybe in 2005 the Democrats will offer a weak fix, but the Republicans will hold out for a repeal. And then in April 2006, there will burst forth 13.4 million irate taxpayers, plus tens of millions more who read the headlines and observe they will be hit over the next few years. Then the GOP will move in for the kill, and either repeal or massively reform the AMT.

So that's when AMT will probably get fixed, in 2005 or 2006. I bet this was the GOP plan all along, but the Dems let it pass, and I don't see any other reports that have caught on. You heard it here first. Mike

-- MattWalsh - 16 Mar 2002