What Is an “alternative Minimum Tax” and Why It Matters to the Rest of Us

One of the standout points of Trump’s 2005 tax return , released last night, was the so-called Alternative Minimum Tax (AMT). If you’re not very familiar with it, here’s what AMT is and why it matters.

David Kay Johnston, Daily Beast Reporter, tax analyst and author, found Trump’s 2005 IRS 1040 in his mailbox and shared it online (and on Rachel Maddow ). The Daily Beast reports :

The documents show that Trump and his wife Melania are paying $ 5.3 million in regular federal income tax – less than 4%. However, the Trumps paid another $ 31 million in “Alternative Minimum Tax,” or AMT. Earlier, Trump called for the abolition of this tax.

Obviously, this is not the only thing worth noting in this whole fiasco, but it sheds light on the meaning of the ALT, an important part of the IRS tax code .

The Alternative Minimum Tax was mainly designed to keep wealthy people from using so many loopholes that they did not pay their fair share of taxes. As explains the Tax Policy Center , in 1968 the Minister of Finance Joseph W. Barr told Congress that 155 taxpayers with an income of more than 200 000 dollars (which was even more significant sum at the time) did not pay federal income tax in 1966. of course outraged, and ultimately AMT was created to address that outrage and fix the problem. The IRS describes AMT as follows:

The Alternative Minimum Tax (AMT) applies to taxpayers with high economic income by setting a cap on these benefits. This helps ensure that taxpayers pay at least the minimum amount of tax.

“While AMT has made taxation more difficult for many middle-income taxpayers, it still keeps the super-rich from near-total tax evasion,” explains Johnston. He said to Maddow (emphasis mine):

“Remember, we have two tax systems. Wealthy people effectively calculate our tax twice: under the regular tax system and under the alternative minimum tax. If we didn’t have AMT – and Donald Trump wants to end AMT in writing – he would pay taxes at a lower rate than the bottom half of the taxpayers, the poor in this country who earn less than $ 33,000 … He would pay a little more $ 5 million, less than three and a half percent … The point is, the people at the top in this country are not burdened as we suggest. “

Another interesting takeaway from Trump’s 2005 report was that he continued to benefit from the $ 916 million loss he reported in his 1995 tax return , using it as a tax credit. While this was dubious at the time, it was a perfectly legitimate loophole. AMT compensates for the cost of such loopholes.

If this all sounds like a mess, it is. In his book Perfectly Legal, Johnston details the many problems and issues that exist in our tax system. It’s complicated, but explains exactly why the people at the top aren’t “burdened the way we suggest,” and how they are missing out on huge amounts of taxes through loopholes, loans and tax havens.

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