The continuing creep of the Alternative Minimum Tax (AMT) is threatening to impact tens of millions of Americans in 2007 - a fact that will push it to the forefront of tax policy issues. In 1995, 414,000 wealthy tax payers paid the Alternative Minimum Tax (AMT), and in 2001, that number grew to 1.3 million. Unless Congress acts, 23.4 million Americans are expected to be snagged by this "stealth tax" in 2007, which was originally intended to affect only 20,000 wealthy taxpayers. However, it is not simply the large and growing number of people paying the AMT that is troubling, but who exactly is paying the tax. What was virtually unthinkable in 1969, when the tax was conceived, is now happening - households earning less than $100,000 are paying a tax that was originally designed to ensure that millionaires paid some minimum amount of income tax. Recent tax policy under the Bush Administration has exacerbated the problem of the AMT. The 2001 and 2003 Bush tax cuts were designed to increase the amount of taxes paid through the AMT. The Tax Policy Center, which has written extensively about AMT, notes that tax cuts enacted between 2001 and 2006 have "more than doubled the projected share of taxpayers who will face the AMT in 2010, from 16.0 percent to 33.6 percent." In fact, the degree to which Bush and his tax-cut supporters relied on the stealth tax to make his tax cuts appear more affordable is betrayed by the fact that if current tax law is extended beyond its 2010 sunset date, it will cost the Treasury more to repeal the AMT than it would to repeal the regular income tax. Unlike the regular income tax, the AMT’s exemptions and brackets are not indexed for inflation. As average incomes grow with inflation (and the AMT does not), more and more taxpayers incur liabilities in this parallel tax universe. As the AMT reaches deeper into the middle class, Congress is forced to periodically apply stopgap measures (typically called "patches") that adjust the AMT upwards to keep middle-class families from paying a tax they were never intended to pay. Key Democrats have indicated their intention to put AMT reform at the top of their list. Rep. Charles Rangel (D-NY), incoming chair of the House Ways and Means Committee, has announced that he plans to make AMT repairs a top priority of his agenda, and Sen. Max Baucus (D-MT), incoming chair of the Senate Finance Committee, has been a longtime foe of the AMT. The Center on Budget and Policy Priorities estimates the potential price tag of full repeal at $1.2 trillion through 2015. This is seen as the least desirable fix for a variety of reasons. Primarily, it is unaffordable, but repeal is also a regressive solution as more than half of the benefits of repeal would go to households earning more than $200,000 in 2010. Although Baucus may wish for full repeal of the AMT, it is not likely to be on the 110th Congress’s agenda because of the cost of offsetting the lost revenue. Short of full repeal, Congress has a number of options varying in cost and detail. For example, AMT exemption amounts and brackets could be indexed for inflation, with 2006 as the base year. The CBO projects this would cost $376 billion through 2015. But this estimate assumes the 2001 and 2003 tax cuts are allowed to expire - a key point due to the large degree these tax cuts increase the cost of changing the AMT. If the tax cuts are extended, the cost of inflation indexing jumps to $848 billion. Another option is for Congress to change the "preferences" of the deductions allowed under the AMT. Preferences are those deductions allowed under the regular income tax but not included in AMT liability calculations. For example, households may deduct state and local income taxes from their regular federal income tax, but not from the AMT. Depending on which credits or deductions are allowed under the AMT, this option would reduce the number of AMT taxpayers by more than 20 million, at a cost of $529 billion through 2015. There are numerous permutations of "preferences" possible, all of which would affect who would be liable for the AMT, how much they would pay, and the total cost of the fix. However, AMT reform does not necessarily require forgoing considerable amounts of revenue. Leonard Burman at the Tax Policy Center has devised several revenue-neutral options that reinstitute the original goals of the AMT. In his paper, "The Expanding Reach of the Individual Alternative Minimum Tax," Burman proposes inflation indexing and allowing dependent exemptions, coupled with an increase in the rate of the top AMT bracket. In addition to these changes, Burman recommends other technical changes that would actually raise $9 billion in revenue through 2015. Burman has also suggested eliminating the AMT, applying desirable AMT provisions to the regular income tax code, and adjusting the regular income tax brackets (i.e., increase tax rates) to make up for lost AMT revenue. This solution would do away with the parallel tax systems and simplify the tax code while maintaining progressivity. However, this idea most likely would be harder for Congress to swallow, since it would likely be branded as a "tax increase." It is unclear whether any of Burman’s proposals are a silver bullet that would painlessly fix the AMT to restore its equity (and revenue), but Congress will likely need to consider ideas like his in the AMT debate in the coming months.