administration Social Security annuities became taxable. Alternative minimum tax The alternative minimum tax (AMT) was introduced by the Tax Reform Act of 1969, and became operative in 1970. It was intended to target 155 high-income households that had been eligible for so many tax benefits that they owed little or no income tax under the tax code of the time. In recent years, the AMT has been under increased attention. With the Tax Reform Act of 1986, the AMT was broadened and refocused on homeowners in high tax states. Because the AMT is not indexed to inflation and recent tax cuts, an increasing number of middle-income taxpayers have been finding themselves subject to this tax. In 2006, the IRS's National Taxpayer Advocate's report highlighted the AMT as the single most serious problem with the tax code. The advocate noted that the AMT punishes taxpayers for having children or living in a high-tax state and that the complexity of the AMT leads to most taxpayers who owe AMT not realizing it until preparing their returns or being notified by the IRS. Capital gains tax The origins of the income tax on gains from capital assets did not distinguish capital gains from ordinary income. From 1913 to 1921, income from capital gains was taxed at ordinary rates, initially up to a maximum rate of 7 percent. Congress began to distinguish the taxation of capital gains from the taxation of ordinary income according to the holding period of the asset with the Revenue Act of 1921, which allowed a tax rate of 12.5 percent gain for assets held at least two years. In addition to different tax rates depending on the holding period, Congress began excluding certain percentages of capital gains depending on the holding period. From 1934 to 1941, taxpayers could exclude percentages of gains that varied with the holding period: 20, 40, 60, and 70 percent of gains were excluded on assets held 1, 2, 5, and 10 years, respectively. Beginning in 1942, taxpayers could exclude 50 percent of capital gains from income on assets held at least six months or elect a 25 percent alternative tax rate if their ordinary tax rate exceeded 50 percent. Capital gains tax rates were significantly increased in the 1969 and 1976 Tax Reform Acts. The 1970s and 1980s saw a period of oscillating capital gains tax rates. In 1978, Congress reduced capital gains tax