he society and the economy at large. I think the tax laws pertaining to health care have been successful in making health care insurance more accessible, and in keeping health care costs confined to an affordable range. However, there are times when our representatives in Washington attempt to engineer people’s behavior, not to address the greater needs of the society, but to appease one lobby or another. Examples include the tobacco industry, the refining sector, and others like them who for years have enjoyed favorable tax treatment.
Furthermore, one can argue that even at the individual level the tax code, despite being labeled a progressive one, really creates tremendous inequities by allowing the wealthy to legally have a lower effective tax rate via deductions and credits. While the electrical vehicle credit is justifiable to promote a clean environment, why are there no credits for people who walk or bike to work. Does AMT reduce or increase deductions and exclusions available to taxpayers? What is its purpose? AMT typically reduces or eliminates deductions, and increases and decreases exclusions.
Certain tax benefits available under the regular tax system, such as itemized deductions and state taxes are reduced or eliminated when computing AMT. Medical expenses, for example, that are normally deductible in excess of 7. 5% of AGI under the regular tax system, are deductible only in excess of 10% of AGI under the AMT system. Similarly, state income taxes paid and real estate property taxes are not allowed as a deduction under the AMT. In terms of exclusions, tax refunds are not included in the income computation for AMT.
However, tax exempt interest from private activity bonds, which is excluded from AGI under the regular tax system, is included in the income computation under the AMT. The AMT tax system is based on an alternative set of rules for income tax computation, with the primary purpose to prevent taxpayers with substantial income from using exclusions, deductions, and credits to pay little or no tax. Unfortunately though, the AMT exemption is not indexed for inflation, subjecting an increasing number of middle-income taxpayers (with multiple dependency exemptions and numerous deductions) to AMT.