The alternative minimum tax was created in 1969. The goal of the tax was to prevent ultra rich individuals from avoiding paying their fair share of tax revenues through various strategies put together by a herd of tax lawyers and accountants. Well, it worked. There was one problem, however. The alternative minimum tax now captures many middle class individuals as well. This has caused a rather major problem for politicians who hear about it from their constituents on a regular basis.



The alternative minimum tax is undisputedly a bad piece of tax code. The sheer stupidity of the tax is shown merely be how a taxpayer determines if it applies to them. Instead of running your finances through a simple worksheet, you have to do your taxes twice. In one version, you prepare a normal tax return. In the other, you return the alternative minimum return. If you are snagged by the tax, you then pay whichever approach results in the government getting more of your money. Ah, the government at work.

Given the nightmare of the alternative minimum tax, why hasn't it been repealed? Well, there is one basic reason. It now brings in massive tax revenues to the government. If repealed, the government would lose all that income. Considering the massive budgetary debt we already have, it is a difficult issue to say the least. One proposal is to do away with the tax and replace the lost revenue by raising other taxes. As you might imagine, taxpayers are very cool to this proposal.

Perhaps the most ironic thing is the alternative minimum tax may ultimately become the spur that kicks off a complete re-writing of the tax code. There is no simple way to address it given the way the current code is written. If it is going to be changed, the tax code as a whole probably is going to need to be tweaked. This will raise issues of how exactly we should be taxed as a society. Included in those discussions will be national sales tax and flat tax proposals. While the merits of those taxes are controversial, there is no doubt they would make filing taxes much easier.

The Alternative Minimum Tax is a nightmare. As it ensnares more and more people, it may ironically become the basis of major tax change in our country.