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Like a pesky fly that you swat away from your face but then returns a few minutes later, the Alternative Minimum Tax (“AMT”) is once again vexing lawmakers and citizens alike.

It appears no one likes the Alternative Minimum Tax – although some like the revenue it generates for the Treasury. According to Bloomberg,

“The minimum tax was created in 1969 to prevent 155 wealthy Americans from eliminating tax liabilities by claiming excessive deductions, credits and exemptions. The tax works by replacing common deductions such as those for medical expenses and state and local taxes with a flat exemption when the itemized deductions become too large relative to income….Because the exemption was never indexed for inflation, the levy has ensnared a growing number of Americans as incomes and the value of deductions rise. “

How Many Americans Should Pay AMT?

For most of its existence, the AMT has affected less than one percent of taxpayers in any one year. However, estimates indicate that under the current law and exemption, up to 22 million taxpayers would owe additional taxes under AMT in 2007. That is a quite an increase since the law was instated in 1969 to beat extra taxes out of 155 wealthy people. In fact, to get to 22 million taxpayers affected in 2007 from 155 taxpayers affected in 1969 requires nearly a 37% annual growth rate.

Can’t We All Just Get Along?

While Republicans and Democrats rarely see eye to eye on any issue, the Alternative Minimum Tax seems to pester both sides of the aisle equally.

CNN reports,

“Everyone agrees that in its current form the AMT is ill-conceived. Since the AMT's inception nearly 40 years ago, the amount of income you're allowed to exempt from AMT consideration has never been adjusted for inflation.”

And yet, perhaps only for tradition sake, the parties disagree vehemently about how to pay for the loss of revenue when lawmakers shield many of the unintended middle class from the pain of increased taxes.

"With passage of this bill, we're giving the Senate Republicans another opportunity to be responsible and hopefully this time they will do the right thing and support this critical relief," said House Ways and Means Chairman Charles Rangel, D-N.Y., in a statement.

It appears that House Democrats want businesses to offset the estimated $50 billion Treasury revenue loss that would occur when the AMT relief is passed.

“The House on Wednesday passed a revised bill calling for a one-year "fix" to the Alternative Minimum Tax (AMT) that would be fully paid for by imposing new taxes and penalties, primarily on businesses.

Senate Republicans, on the other hand, are opposed to the offset provided by House Democrats because the revenue was never intended to be raised in the first place since the tax wasn't intended to hit middle class taxpayers.

The move is likely to be rejected by the Senate, which last week passed its own AMT fix with no funding, a stance that Republicans and the White House have insisted on repeatedly.”

Please Pass the AMT Relief.

Relief is likely on the way and bets are that the Senate wins. As for me, I am watching a small piece of this legislation that offers AMT ISO relief - that is a refund of AMT taxes paid on phantom gains in 2000 after certain taxpayers (me included) exercised Incentive Stock Options after the tech bubble burst. The grassroots organization ReformAMT has remarkably fought to right the wrong that was perpetuated against employees receiving options as compensation during the tech boom between 1995 and 2000. Check it out.

Photo credit fugazzi