President Trump is determined to abolish the "Alternative Minimum Tax" (AMT). For Americans, reducing or eliminating taxes is always good news. What most Americans don't know is that by abolishing the AMT, Trump would have saved $31 million in 2005.
For that year, Trump made a total income of $153 million. He also paid a total of $38.5 million in taxes, in which $31 million of that figure is for the AMT.
During the campaign period, Trump was very vocal about abolishing the AMT. According to him, he wanted the Americans to have a simpler tax code, one that has only four brackets. Trump is pertaining to the 25%, 20%, 10%, and 0% brackets. As of the moment, the tax system has seven brackets. What Trump wants is to abolish the AMT and marriage penalty tax.
If the AMT did not exist in 2005, Trump would have only had to pay a fraction of his tax bill for that year. In fact, he would have only paid 4.5% or $7 million. Not only will this lower his tax bill, but it will also make him pay less taxes compared to a person earning less than $100,000. Yes, without the AMT, he would have saved $31 million!
It can be debated that the numbers mentioned above may be different as the tax structuring is still based with the AMT in place. It's possible that without the AMT, the entire structure would be different and that may also alter the resulting tax numbers. Despite that, such calculations will give you a rough idea on how much Trump would have saved if the AMT was abolished.
AMT was first introduced during the 1970s. It was implemented for a purpose and it mainly targets the self-employed and the wealthy. It's there to ensure that the tax gap between ordinary workers and the self-employed and wealthy doesn't get out of hand.
US tax codes work in a way that they allow the self-employed and the wealthy to take "deductions" a.k.a business expenses or operational costs. Basically, for the ordinary workers, they pay taxes based on their income. For business owners and the self-employed, they subtract their "deductions" and what is left is then taxed. With enough deductions, a self-employed and a businesses owner can reduce their taxable income in a way that ordinary workers will end up paying more in taxes. AMT aims to level the playing field.
With AMT, if a person earns a certain level of gross income, then they will pay a flat tax rate no matter how many deductions are made. In 2005, the level was $109,475 yearly income.
Trump's tax proposals aim to abolish the AMT and simply replace it with the five tax bands. This would mean that business owners and the self-employed would be free from the AMT and they would simply belong to the tax rate of 25%.
In the event that the AMT is abolished, the rich will have another loophole to work with. In the end, it's going to be the middle class and the poor who will be doing more tax-paying.