This figure is tentative because if it s smaller than his regular tax, then he pays the regular tax. But if the tentative AMT figure exceeds the regular tax figure, he has to send that much extra to Washington. Tentative AMT can exceed regular tax, even with a moderately lower rate, because taxable income under the AMT is enlarged by so-called preferences and because the exemption is phased out according to how high the taxpayer s income is. But, the way the numbers turn out, excessive seems to mean anything over average. A deduction for mandatory tax payments hardly has the character of a true preference, and without it, the same income is taxed twice.
Miscellaneous deductions supporting the generation of income are also phony preferences.
For a typical home-owning family of four, the treatment of state and local taxes and miscellaneous expenses as preferences raises the AMT base, before an allowable exemption, to 117 percent of the regular tax base. This alone brings tentative AMT quite close to regular tax. Besides tax and miscellaneous preferences, other items are treated as preferences including catastrophe and theft losses, medical expenses, tax-exempt interest, and incentive stock options. In spite of the absence of multiyear averaging provisions, extraordinary single-year AMT payments are not recoverable unless caused by timing preferences. Some claim that the AMT is a proxy for a flat tax.