WikiLeaks Document Release http://wikileaks.org/wiki/CRS-RS22083 February 2, 2009 Congressional Research Service Report RS22083 Alternative Minimum Taxpayers by State: 2005, 2006, and Projections for 2008 Steven Maguire, Government and Finance Division July 15, 2008 Abstract. In 2006, 4.1 million taxpayers were subject to the AMT. New Jersey, Connecticut, New York, the District of Columbia, and Maryland had the highest percentage of taxpayers subject to the AMT. South Dakota, Tennessee, Alaska, Mississippi, and North Dakota had the lowest percentage of taxpayers subject to the AMT. In 2008, absent legislative change, according to the Joint Committee on Taxation, some 25.7 million taxpayers will be affected by the AMT. At that time, whether a married taxpayer has itemized deductions for state/local taxes or miscellaneous deductions will become a much less important factor than it is at present in determining AMT coverage. This occurs because, whether they itemize their deductions or not, married taxpayers across a wide range of the income spectrum will be subject to the AMT because personal exemptions are not allowed against the AMT. Order Code RS22083 Updated July 15, 2008 Alternative Minimum Taxpayers by State: 2005, 2006, and Projections for 2008 Steven Maguire Specialist in Public Finance Government and Finance Division Summary http://wikileaks.org/wiki/CRS-RS22083 Personal exemptions, itemized deductions for state/local taxes, and miscellaneous itemized deductions account for 96% of the preference items that are subject to tax under the alternative minimum tax (AMT) but not subject to tax under the regular income tax. As a result, over certain income ranges, taxpayers who claim itemized deductions for state/local taxes, miscellaneous deductions, or have large families are more likely to fall under the AMT than taxpayers who do not have these characteristics. In 2006, 4.1 million taxpayers were subject to the AMT. New Jersey, Connecticut, New York, the District of Columbia, and Maryland had the highest percentage of taxpayers subject to the AMT. South Dakota, Tennessee, Alaska, Mississippi, and North Dakota had the lowest percentage of taxpayers subject to the AMT. In 2008, absent legislative change, according to the Joint Committee on Taxation, some 25.7 million taxpayers will be affected by the AMT. At that time, whether a married taxpayer has itemized deductions for state/local taxes or miscellaneous deductions will become a much less important factor than it is at present in determining AMT coverage. This occurs because, whether they itemize their deductions or not, married taxpayers across a wide range of the income spectrum will be subject to the AMT because personal exemptions are not allowed against the AMT. This report will be updated as legislative action warrants or as new data become available. The alternative minimum tax for individuals (AMT) was originally enacted to ensure that high-income taxpayers paid a fair share of the federal income tax. However, the lack of indexation of the AMT coupled with the recent reductions in the regular income tax has greatly expanded the potential impact of the AMT.1 1 See CRS Report RL30149, The Alternative Minimum Tax for Individuals, by Steven Maguire. CRS-2 Temporary increases in the AMT exemptions expired at the end of 2007. If legislative changes do not extend the expired changes, then the number of taxpayers subject to the AMT will rise from around 5 million in 2007 to 24.2 million in 2008. Further, by 2010, some 31 million taxpayers will be subject to the AMT.2 Taxpayers with incomes in the $100,000 to $500,000 income range will be the hardest hit: 88% of these taxpayers will be subject to the AMT in 2010. Itemized deductions for state/local taxes (62.7%), personal exemptions (22.4%), and miscellaneous itemized deductions (11.4%) together account for 96% of the preference items that are subject to tax under the AMT but not subject to tax under the regular income tax.3 As a result, over certain income ranges, taxpayers who claim itemized deductions for state/local taxes, miscellaneous deductions, and/or have large families are more likely to fall under the AMT than taxpayers who do not have these characteristics. Table 1 and Table 2 show for 2005 and 2006, respectively, the percentage of taxpayers in each state that were subject to the AMT. Of all the states, South Dakota, Tennessee, Alaska, Mississippi, and North Dakota had the smallest percentage of taxpayers subject to the AMT. In these five states, roughly 1% of taxpayers were on the http://wikileaks.org/wiki/CRS-RS22083 AMT in 2006. These are states in which either many taxpayers have relatively low incomes, or state/local taxes that are deductible from the federal income tax are relatively low. As a result of the combination of these factors, taxpayers in these states tend not to itemize their deductions and hence, are less likely to be subject to the AMT than taxpayers in other states.4 On the other hand, New Jersey, Connecticut, New York, the District of Columbia, and Maryland were the states with the largest percentage of taxpayers subject to the AMT. For instance, in New Jersey, about 65 out of every 1,000 taxpayers fell under the AMT in 2006. In these states, many taxpayers have relatively high incomes and the state/local tax burden is also relatively high. The combination of these factors produces a larger number of itemizers and, consequently, a larger percentage of taxpayers being captured by the AMT. Note that absent legislative change (a patch), whether a married taxpayer has itemized deductions for state/local taxes and/or miscellaneous deductions will become a less important factor in determining whether taxpayers are subject to the AMT. This will result because, if the AMT is not modified, then across a broad range of the income spectrum all married taxpayers will be subject to the AMT whether they itemize their deductions or not. The potentially expanding impact of the AMT has been mitigated through temporary increases in the basic exemption for the AMT and temporary changes that allow taxpayers to use nonrefundable personal tax credits to reduce their AMT liabilities. The most recent 2 U.S. Congress, Joint Committee on Taxation, "Present Law and Background Relating to the Alternative Minimum Tax," JCX-38-07, June 25, 2007. 3 JCT, June 25, 2007, p. 18. 4 For more on the deductibility of state and local taxes, see CRS Report RL32781, Federal Deductibility of State and Local Taxes, by Steven Maguire. CRS-3 increase in the basic AMT exemption occurred in December 2007 with the enactment of the Tax Increase Prevention Act of 2007 (TIPA, P.L. 110-166). Under provisions of this act, the AMT exemption for 2007 was set at $66,250 for joint returns and $44,350 for unmarried taxpayers. In addition, this act allows taxpayers to temporarily use nonrefundable tax credits to offset AMT liability. In 2008, the basic AMT exemption is scheduled to decrease to its prior law level of $45,000 for joint returns ($35,750 for unmarried taxpayers), and nonrefundable tax credits will not be allowed to offset AMT liability. Because the temporary patches to the AMT expired at the end of 2007, in 2008 roughly 21 million more taxpayers will likely be subject to the AMT.5 An increase of this magnitude will affect taxpayers in every state, regardless of whether taxpayers in that state itemize and deduct their state/local taxes and/or miscellaneous deductions from their federal tax returns. For example, in 2006, 27,217 taxpayers in Tennessee were subject to the AMT. Thus, Tennessee taxpayers accounted for only 0.66% of the total AMT returns filed in the United States that year. However, if that percentage remains constant, and the temporary http://wikileaks.org/wiki/CRS-RS22083 patches to the AMT expire, then in 2008 up to 159,000 (0.66% times 24.156 million) taxpayers in Tennessee could be subject to the AMT. Table 3 shows the potential number of AMT returns by state in 2008 if the temporary patches to the AMT are not extended. The CRS calculations are an extrapolation based on the assumption that the ratio of AMT taxpayers in each state to total AMT taxpayers in the entire country will remain the same in 2008 as it was in 2006. The methodology makes assumptions that could be challenged, but still provides a reasonable estimate of the potential impact of the AMT in 2008 absent legislative changes. The House Ways and Means Committee has released projections of the number of AMT taxpayers by congressional district. These projections can be found on the committee's website.6 The Joint Committee on Taxation estimates that the one-year AMT patch for 2008 would reduce federal revenues by almost $61.5 billion over 10 years.7 5 JCT, June 25, 2007. 6 The congressional district projections for number of AMT filers in 2008 are at the following website: [http://waysandmeans.house.gov/MoreInfo.asp?section=46], visited July 15, 2008. 7 U.S. Congress, Joint Committee on Taxation, "Estimated Revenue Effects of H.R. 6275, the `Alternative Minimum Tax Relief Act of 2008,' Scheduled for Markup by the Committee on Ways and Means on June 18, 2008," JCX-51-08, June 17, 2008. CRS-4 Table 1. Number of Alternative Minimum Taxpayers by State, Tax Year 2005 (returns in thousands) Number of AMT returns as Number of AMT AMT returns as Rank State AMT returns Rank State returns % of total returns returns % of total U.S.A. 135,258 4,068 3.01% 47 Alabama 1,956 21 1.07% 32 Montana 448 8 1.79% 48 Alaska 347 3 0.86% 25 Nebraska 816 17 2.08% 27 Arizona 2,474 49 1.98% 38 Nevada 1,150 18 1.57% 39 Arkansas 1,154 17 1.47% 20 New Hampshire 650 15 2.31% 6 California 15,573 757 4.86% 1 New Jersey 4,153 283 6.81% 23 Colorado 2,160 46 2.13% 42 New Mexico 843 11 1.30% http://wikileaks.org/wiki/CRS-RS22083 3 Connecticut 1,682 99 5.89% 2 New York 8,716 523 6.00% 21 Delaware 403 9 2.23% 18 North Carolina 3,880 93 2.40% 4 District of Columbia 282 15 5.32% 46 North Dakota 307 3 0.98% 28 Florida 8,411 161 1.91% 12 Ohio 5,460 152 2.78% 15 Georgia 3,918 102 2.60% 40 Oklahoma 1,496 21 1.40% 22 Hawaii 621 14 2.25% 11 Oregon 1,645 48 2.92% 30 Idaho 614 12 1.95% 14 Pennsylvania 5,867 154 2.62% 13 Illinois 5,836 153 2.62% 9 Rhode Island 502 17 3.39% 41 Indiana 2,884 41 1.42% 31 South Carolina 1,885 35 1.86% 37 Iowa 1,347 22 1.63% 51 South Dakota 367 3 0.82% 24 Kansas 1,242 26 2.09% 49 Tennessee 2,658 25 0.94% 35 Kentucky 1,780 31 1.74% 34 Texas 9,728 172 1.77% 43 Louisiana 1,770 22 1.24% 29 Utah 1,031 19 1.84% 19 Maine 621 15 2.42% 16 Vermont 310 8 2.58% 5 Maryland 2,674 134 5.01% 8 Virginia 3,541 124 3.50% 7 Massachusetts 3,083 146 4.74% 36 Washington 2,932 50 1.71% 26 Michigan 4,563 93 2.04% 45 West Virginia 754 9 1.19% 10 Minnesota 2,446 74 3.03% 17 Wisconsin 2,656 65 2.45% 50 Mississippi 1,170 11 0.94% 44 Wyoming 248 3 1.21% 33 Missouri 2,611 47 1.80% Source: Department of the Treasury. Internal Revenue Service, available at [http://www.irs.ustreas.gov/pub/irs-soi/05in54cm.xls], visited July 15, 2008. CRS-5 Table 2. Number of Alternative Minimum Taxpayers by State, Tax Year 2006 Number of AMT returns as Number of AMT AMT returns as Rank State AMT returns Rank State returns % of total returns returns % of total U.S.A. 139,230,752 4,117,686 2.96% 45 Alabama 2,028,820 23,864 1.18% 33 Montana 465,929 8,442 1.81% 49 Alaska 341,329 3,469 1.02% 26 Nebraska 833,432 16,896 2.03% 28 Arizona 2,596,639 51,028 1.97% 40 Nevada 1,210,794 18,198 1.50% 43 Arkansas 1,184,565 16,828 1.42% 20 New Hampshire 660,961 14,917 2.26% 6 California 15,987,519 735,476 4.60% 1 New Jersey 4,229,622 273,589 6.47% 18 Colorado 2,228,867 52,903 2.37% 44 New Mexico 887,176 11,833 1.33% http://wikileaks.org/wiki/CRS-RS22083 2 Connecticut 1,714,027 96,823 5.65% 3 New York 8,964,337 493,391 5.50% 19 Delaware 412,049 9,628 2.34% 17 North Carolina 4,005,613 98,871 2.47% 4 District of Columbia 287,723 15,017 5.22% 47 North Dakota 314,622 3,651 1.16% 29 Florida 8,656,007 168,866 1.95% 14 Ohio 5,520,709 138,775 2.51% 15 Georgia 4,075,882 102,159 2.51% 39 Oklahoma 1,544,498 23,694 1.53% 24 Hawaii 638,212 13,428 2.10% 11 Oregon 1,695,185 48,753 2.88% 27 Idaho 641,026 12,623 1.97% 13 Pennsylvania 6,040,716 152,705 2.53% 12 Illinois 5,979,694 160,305 2.68% 9 Rhode Island 516,906 15,705 3.04% 41 Indiana 2,969,013 43,228 1.46% 30 South Carolina 1,948,517 37,513 1.93% 37 Iowa 1,378,083 22,905 1.66% 51 South Dakota 377,808 3,640 0.96% 23 Kansas 1,289,274 27,609 2.14% 50 Tennessee 2,742,268 27,127 0.99% 38 Kentucky 1,822,852 28,172 1.55% 34 Texas 10,090,061 180,948 1.79% 36 Louisiana 1,894,724 32,537 1.72% 25 Utah 1,075,222 21,922 2.04% 22 Maine 633,971 14,004 2.21% 16 Vermont 319,131 7,933 2.49% 5 Maryland 2,717,418 127,303 4.68% 8 Virginia 3,618,883 127,929 3.54% 7 Massachusetts 3,144,359 143,615 4.57% 32 Washington 3,017,975 54,697 1.81% 31 Michigan 4,655,310 89,131 1.91% 46 West Virginia 770,261 9,056 1.18% 10 Minnesota 2,559,718 74,282 2.90% 21 Wisconsin 2,737,590 61,727 2.25% 48 Mississippi 1,234,286 13,931 1.13% 42 Wyoming 257,852 3,703 1.44% 35 Missouri 2,720,684 48,385 1.78% Source: Department of the Treasury. Internal Revenue Service, available at [http://www.irs.ustreas.gov/pub/irs-soi/06in54cm.xls], visited July 15, 2008. CRS-6 Table 3. Potential AMT Returns by State, Tax Year 2008 Potential AMT returns Potential AMT returns State AMT returns in 2006 in 2008 State AMT returns in 2006 in 2008 (CRS) (CRS) U.S.A. 4,117,686 24,156,000 Alabama 23,864 139,996 Montana 8,442 49,524 Alaska 3,469 20,351 Nebraska 16,896 99,119 Arizona 51,028 299,351 Nevada 18,198 106,757 Arkansas 16,828 98,720 New Hampshire 14,917 87,509 California 735,476 4,314,598 New Jersey 273,589 1,604,983 http://wikileaks.org/wiki/CRS-RS22083 Colorado 52,903 310,350 New Mexico 11,833 69,417 Connecticut 96,823 568,003 New York 493,391 2,894,430 Delaware 9,628 56,482 North Carolina 98,871 580,017 District of Columbia 15,017 88,096 North Dakota 3,651 21,418 Florida 168,866 990,636 Ohio 138,775 814,110 Georgia 102,159 599,306 Oklahoma 23,694 138,999 Hawaii 13,428 78,774 Oregon 48,753 286,005 Idaho 12,623 74,052 Pennsylvania 152,705 895,829 Illinois 160,305 940,414 Rhode Island 15,705 92,132 Indiana 43,228 253,593 South Carolina 37,513 220,066 Iowa 22,905 134,370 South Dakota 3,640 21,354 Kansas 27,609 161,965 Tennessee 27,127 159,138 Kentucky 28,172 165,268 Texas 180,948 1,061,514 Louisiana 32,537 190,875 Utah 21,922 128,603 Maine 14,004 82,153 Vermont 7,933 46,538 Maryland 127,303 746,811 Virginia 127,929 750,483 Massachusetts 143,615 842,503 Washington 54,697 320,875 Michigan 89,131 522,878 West Virginia 9,056 53,126 Minnesota 74,282 435,768 Wisconsin 61,727 362,115 Mississippi 13,931 81,725 Wyoming 3,703 21,723 Missouri 48,385 283,846 Source: Calculations by CRS assuming that the ratio of AMT taxpayers in each state to total AMT taxpayers in the entire country will remain the same in 2008 as it was in 2006. Projected Number of AMT taxpayers in the U.S. in 2008 are based on data from U.S. Congress, Joint Committee on Taxation, "Present Law and Background Relating to the Alternative Minimum Tax," JCX-38-07, June 25, 2007.