Expand the AMT!

We shouldn’t get rid of the AMT we should expand it.  The AMT is a flat tax, it’s broad-based (few loopholes), it doesn’t allow for deduction of state and local taxes (which only increases the incentive of states and localities to raise taxes) and it’s simple.  The AMT should be reformed along the edges e.g. by indexing it to inflation (after more people are covered!) but overall it’s a much better tax than the current income tax.

I assume that readers know that I am not in favor of raising taxes but let me be clear.  We should expand the AMT but get rid of the income tax.


Suppose local, state, and federal taxes are all about 40% of your income and you are not able to deduct anything. How are you going to pay 120% of your income in taxes?

The AMT is simply stupid.

Isn't encouraging local taxes at the expense of federal taxes a good thing? It would seem that taxpayers would get a much better idea of how well their taxes are being spent and how much value they are getting at the state and local levels as compared to the federal level. Also the relationship between taxes and the economy could be more easily studied and understood.

Well, as I noted in an earlier comment on an
earlier posting, Tyler's view is the same as that
of The Economist. It is essentially a back
door way of achieving tax simplification. I
happen to support tax simplification, and maybe
it is the way to go, although I personally find
the AMT to be really annoyingly obnoxious,
although that may simply reflect the fact that
under the current system it leads me to be paying
more than I would otherwise personally.

By the way, if state and local taxes weren't deductible, then the voters in your state wouldn't have made it 40% of your income in the first place.

That's a pretty bold statement. I could easily see voters making it 40% of my income... as long as it wasn't 40% of the majority voters' income. Just because I can't pay it doesn't mean they won't try to collect it. There's no law requiring voters to be rational.

Grant Gould is right about moving, though. You can blame California's high taxes on the weather and the beaches.

The AMT is not a flat tax, it has 5 different rates (2 Ordinary, 3 capital gain), has an exemption amount, and has many more deductions than you might think (more are left in then left out in comparison to the ordinary tax). And anyone who seriously considers a flat tax does not think 25% is acceptable.

If you want dramatic improvemnt, this is a poor approach, and if you want incremental improvement, you have to lower the rate of AMT. Good luck with that.

Expanding the AMT is a good idea if reforms consisted of four parts.

1) Repeal the income tax.
2) Remove “automatic qualifiers† such as stock options.
3) Substantially reduce AMT rates.
4) Allow a rollback to previous AMT exemption levels

Essentially, this would replace the current income tax system with a flat income tax, which would only include deductions for home mortgage interest and charitable donations.

John Goodman’s plan, on the other hand, which involves replacing the AMT and the income tax with a 14% flat consumption tax would achieve many of the same goals (and perhaps more by shifting taxes from income to consumption).

The issue then becomes not where should we go but how we should get there. It’s important to discuss the political viability of each of these plans in order to evaluate the likelihood that any of them would ultimately be written into tax policy. With this in mind, many things can go wrong in the process of trying to get Congress to adopt these policies. We must keep in mind the probability than any given provision will be compromised in the process and the net result of such a compromise.

For example, if the income tax were repealed and an AMT rollback were allowed to occur, but Congress failed to reduce AMT rates, a large amount of middle-income taxpayers would be hit with a big, unfair, and unexpected tax.

Be careful with that axe Eugene.

Me, I like a progressive tax code. I find arguments that conflate a flat tax rate with tax simplicity to be unconvincing, if not dishonest. The core, and in some ways irreducible, complexity of an income tax is determining what income is; once you've done that, determining 15% or 25% or 40% of that is trivial.

(I do recognize that a chunk of complexity comes from the rules that try to block schemes to shift income from high bracket to low bracket taxpayers.)

"it's simple"

Clearly AT is not on the accounting faculty, let alone actually prepared taxes for a diversity of clients. Hell, he hasn't even made it clear if he would like corporations put under the same AMT regime as non-artificial people. Yep, AMT ain't just for your mom and pop.

Good luck dealing with that kind of political blowback...

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