Arnold Kling

Class Warfare Bites Back

Arnold Kling, Great Questions of Economics
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When it was first enacted, the Alternative Minimum Tax was supposed to catch rich people who were taking advantage of too many tax deductions. However, a study by the Urban Institute shows that by 2010 many people will be paying this tax.

By the end of the decade, when the tax cuts pushed into law by the Bush administration in 2001 become fully effective, 85 percent of taxpayers with two or more children will be forced off the regular income tax and onto a separate system known as the alternative minimum tax. The additional burden will fall largely on families with incomes of $75,000 to $500,000. Just three years ago fewer than one million taxpayers, most at the upper reaches of the income spectrum, were subject to the complex separate tax. But if nothing is changed, by 2010 about 36 million taxpayers will face it. Indeed, virtually all taxpayers earning $100,000 to $500,000 will fall under its sway.

Also, by 2010, because of economic growth and inflation a large percentage of taxpayers will be making incomes in those ranges. My guess is that abolition of the alternative minimum tax is a potentially hot political issue for the party that seizes it.

Discussion Question. Assuming that incomes grow and more people become eligible for the AMT, will only the Bush tax cuts be affected, or will it also negate tax benefits enacted under President Clinton for education and other causes?

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