In case you haven’t been paying attention, President Obama is expected to announce a bevy of proposed changes that are aimed at reducing the deficit. Perhaps the most intriguing of these is the so-called “Buffett Rule,” which will be a new minimum tax rate for individuals making over $1M/year.
Details still aren’t available, but it sounds like this new rule (if adopted) could do what the Alternative Minimum Tax (AMT) was intended to do when it was introduced back in 1969 – i.e., prevent the richest households from getting off with little or no tax liability despite being in a high income tax bracket.
Here’s what the IRS says about the AMT:
The tax laws give preferential treatment to certain kinds of income and allow special deductions and credits for certain kinds of expenses. The alternative minimum tax (AMT) attempts to ensure that anyone who benefits from these tax advantages pays at least a minimum amount of tax.
Unfortunately, the AMT was never indexed to inflation, so there’s a mad scramble every year by Congress to patch the law and increase thresholds. Even still, the AMT currently hits millions of taxpayers that it was never intended to hit.
Not surprisingly, the Buffett Rule has already stirred up a ton of controversy, and the details aren’t even known yet. Setting politics aside, I’m intrigued by the possibility of replacing the AMT with a new system that actually does what it’s supposed to do. I’m definitely curious to hear more.