The alternative minimum tax: A regressive policy from a bygone age

During the Vietnam War, the U.S. government began looking for new ways to generate revenue to pay for its rapidly rising military budget. The "alternative minimum tax," (AMT) as the U.S. Congress called it in 1969, was an attempt to wring additional funds from the nation's wealthiest who, at the time, had taken advantage of enough loopholes and deductions to effectively pay zero annual taxes.

The way it works is that, during tax season, you are effectively given two income reviews – the traditional Form 1040 and the more arcane 6251, the latter of which constitutes your AMT obligations. If the 6251 estimate is higher, you can bet that the U.S. government will start jingling the tax bag in your direction.

Back in the old days, only a few hundred thousand of the wealthiest Americans were subject to these levies. Over time, the rolls expanded slowly until 2011, when a record 4 million citizens paid an AMT. Now, on the cusp of 2013, the federal government has all but conceded that a vast expansion of the AMT will take place, raising the number of those affected to a whopping 31 million people.

Up until this point, according to a report from Business Insider, Congress has been able to pass temporary "fixes" that prevent the rolls from growing so significantly. Yet due to the stonewalling and political hijinx ahead of the "fiscal cliff," Congressional leaders are on the cusp of failing to do so.

It's tough to say how these events will pan out. Some are calling for a ban on the AMT, which would cause government revenues to plunge by almost $3 trillion between 2012 and 2022. On the other hand, taxpayers can ill afford another whack to their bank accounts along with an income tax boost and a myriad of other expiring measures.

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