In any event, the tax did not achieve its stated purpose: In 1976, Treasury reported that 244 taxpayers who earned over $200,000 in 1974 had owed no income tax.
This sparked the first of multiple revisions (i.e., compounded complexities) in what became known as the Alternative Minimum Tax. In 1999, Congress voted to phase out the tax, but Clinton vetoed the bill. The tax survived.
Now it's swinging toward a target it can actually hit: the middle class.
In her latest annual report to Congress, IRS National Taxpayer Advocate Nina Olson called the AMT "a time bomb on a short fuse." She ranked it the No. 1 problem facing taxpayers.
"In 2005, it is projected that 65 percent of married couples with an adjusted gross income (AGI) between $75,000 and $100,000 with two or more children will be affected by the AMT -- up from one percent in 2003," wrote Olson, relying on analysis by the Urban-Brookings Tax Policy Center. ". . . In 2010, the AMT is projected to affect nearly 32 million taxpayers. The majority will have incomes under $100,000, and more than 36 percent of taxpayers with incomes between $50,000 and $75,000 will owe AMT."
Why will this tax on the "rich" hit the middle class? First, unlike the regular income tax, which President Reagan forced Congress to index for inflation, the AMT was never indexed. Secondly, the AMT disallows deductions that go to the core of middle-class life -- including those for dependent children and for state and local taxes.
Finally, Congress now factors into its budget projections -- which foresee huge deficits -- the revenue windfall from imposing the AMT on the middle class.
Joseph Barr was right about one thing. A middle-class tax revolt is coming. But it won't be against the rich. It will be against the tax on the "rich" Barr inspired. And this time, an IRS official is leading the charge. National Taxpayers Advocate Olson recommends that Congress repeal the AMT. Politicians who reject this recommendation may find voters rejecting them.