The AMT precludes the savings you you say some may get by virtue of increasing the top of the 28% bracket. My tax model proves this. The focus should be on changing the AMT to make it fair. The Obama proposal does not go far enough. Here are my thoughts on what needs to be done. In order for the AMT to be truly indexed to inflation, the values of $150,000 in the formula for line 30 of IRS Form 6251 and the values of $175,000 and $3,500 used in the AMT tax calculations in lines 43 and 54 of Form 6251 need to be indexed for inflation from 1993, not 2009 as proposed by Mr. Obama. Mr. Obama indexes the value of $45,000 in the formula for line 30 of IRS Form 1651 from 1993 to the tax year (e.g., from $45,000 in 1993 to $70,950 for 2009). However, he indexes the $150,000 in the same formula from 2009 to the future tax year. For apples-to-apples consistency, this $150,000 should be indexed from 1993 in the same manner as for the aforementioned $45,000 value. Likewise, the aforementioned $175,000 and $3,500 should be indexed from 1993. Actually, one could make a good argument that indexing should begin from 1986. The reason Mr. Obama did not include proper indexing is quite apparent. It is simply the desire to keep tax revenues up by taking a big chunk out of the hide of taxpayers with taxable income between $150,000 and $434,000. Shame on him! The AMT was originally established 40 years ago in 1969. It was established because of a potential taxpayers’ revolt due to the fact that in 1967 there were a total of 155 individuals with incomes over $200,000 who did not pay any federal income taxes and twenty of them were millionaires. In today’s dollars this $200,000 is approximately $650,000 assuming 3% inflation. As explained below, those making over $650,000 are no longer affected by the AMT. Now let’s take a look at the AMT as proposed by Mr. Obama. The formula for line 30 of IRS Form 6251 results in an AMT exemption of $70,950 (for 2009) that begins to phase out at a taxable income of $150,000 and completely phases out at $433,800. During this phase out range ($150,000 to $433,800), the effective AMT tax rates are 32.5% and 35.0% for ordinary income. In addition, the regular tax capital gain rate of 15% is effectively between 21.5% and 22.0% and the regular tax capital gain rate of 20% is effectively between 26.5% and 27.0%, making the AMT tax larger than the regular tax. After the AMT exemption is completely phased out, these AMT tax rates are 22.5%, 25%, 15% and 20%, respectively, making the regular tax greater than the AMT. What does this mean? This means those with taxable incomes between $150,000 and $433,800 are hit by the AMT and those with taxable incomes below $150,000 and above $433,800 are not affected by the AMT, except in extremely rare cases which I’ll not address here. In addition, marginal tax rates (as high as 41.1%) for those affected by the AMT are much higher than those not affected by the AMT. This is discrimination. I think I understand now. Members of Congress like the AMT because they are not personally affected by AMT and the majority of voters are not affected by the AMT. Shame on them! Moreover, these same scoundrels know that the AMT will result in a windfall to the Treasury when the baby boomers have to take their Minimum Required Distributions from deferred tax plans (401k, pension, IRA, etc.) beginning in 2017 and have to pay the AMT on those distributions – thus putting these irresponsible politicians in a position to waste more taxpayers’ money. Shame, shame, shame! I am one of those baby boomers and I do not like what I see. I plan to start a website where I inform others affected by the AMT and we will see how many of our representatives we can vote out of office. I find it ironic that the AMT was instituted to avert a taxpayer revolt and in its proposed form, the AMT is going to cause a taxpayer revolt. I find it very disingenuous for elected officials to hide behind an overly-complicated tax code and screw a selected set of individuals and small businesses. Where is the transparency? Pathetic! The U.S. Government has been pathetic in its design of the tax code. The evolution of the tax code has resulted in a very ugly-looking beast. That is what happens when the government develops the tax code or attempts to deliver the mail. The government should do as little as possible since it only screws things up. How is this problem fixed? An outstanding solution is to eliminate the AMT as Mr. Grassley has proposed. This would result in everyone paying taxes under the same tax structure and there not be a select group that is discriminated against. The AMT no longer even comes close to addressing its original purpose of making sure those earning above $650,000 (today’s dollars) pay taxes. Those making above $650,000 are not affected by the AMT except in rare cases. The next best solution is to index the additional elements in the AMT calculations as I propose above.