Implications For The Alternative Minimum Tax
The 2001 act and the 2003 act significantly lowered the marginal tax rates for nearly all U.S. taxpayers. One byproduct of this tax rate reduction was that it brought to prominence a previously lesser known provision of the U.S. Internal Revenue Code, the Alternative Minimum Tax (AMT). The AMT was originally designed as a way of making sure that wealthy taxpayers could not take advantage of "too many" tax incentives and reduce their tax obligation by too much. It is a parallel system of calculating a taxpayer's tax liability that eliminates many deductions. However the applicable AMT rates were not adjusted to match the lowered rates of the 2001 and 2003 acts, causing many more people to face higher taxes. This reduced the benefit of the two acts for many upper-middle income earners, particularly those with deductions for state and local income taxes, dependents, and property taxes.
The AMT exemption level aspects of the 2001 and 2003 tax cuts, as well as the sunsetting year of capital gains and dividends, were among the tweaks made to the tax code in the Tax Increase Prevention and Reconciliation Act of 2005.
Read more about this topic: Bush Tax Cuts
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