What is the main purpose of the alternative minimum tax (AMT)?

The main purpose of the alternative minimum tax (AMT) is to ensure that high-income individuals pay a minimum amount of tax, regardless of the deductions and credits they might typically claim under the regular tax system. The AMT functions by adding back certain deductions and benefits that affluent taxpayers might use to reduce their taxable income significantly. It establishes a parallel tax system with its own rates and rules, which is designed to prevent high earners from completely avoiding tax liability through various tax planning strategies.

This measure is particularly aimed at fairness in the tax system, recognizing that affluent individuals may disproportionately benefit from tax breaks, leading to cases where they end up paying very little in taxes relative to their income. As a result, the AMT imposes a minimum tax burden to ensure that everyone contributes a fair share, hence fulfilling its intended role within the tax system. The structure of AMT helps to maintain a level of equity among taxpayers with high incomes, addressing the potential for tax avoidance inherent in the traditional tax code.