New at Reason

Julian Sanchez | March 20, 2006

The Alternative Minimum Tax is widely regarded as an obsolete abomination--but Jonathan Rauch wonders: "Compared to what?"

Comments

|3.20.06 @ 4:00PM|#

"The AMT also arbitrarily cancels out many provisions of the regular tax code, which are themselves often pretty arbitrary; if the regular income tax is nonsense, piling the AMT on top of it is nonsense on stilts."

I have been subject to the AMT once in my life so far. I find this passage begs the question:

What's so wrong with the AMT that would also not be a problem with a Steve Forbes/Grover Norquist style flat tax?

Granted, paying taxes is bad.
Granted, being subject to a make-up payment for a "best of both" taxation universe is particularly crappy.

But the AMT on it's own reads a whole lot like I'd expect a Steve Forbes/Grover Norquist flat tax to be implemented. What am I missing? Do any flat-taxers celebrate the AMT?

|3.20.06 @ 4:04PM|#

keith-

I think that having two parellel tax codes runs counter to the ideas of the flat tax crowd, no matter how flat one of those two codes might be. If you have to do the simple system and the complicated system and pay whichever is higher, you aren't really getting the simplicity that the flat tax crowd strives for.

|3.20.06 @ 4:04PM|#

I think they object to the higher tax burden, Keith, but I can really see the virtue of a simpler system. At the very least, it's more honest - nobody can pretend that people aren't paying the tax rate in question.

|3.20.06 @ 4:06PM|#

If you have to do the simple system and the complicated system and pay whichever is higher, you aren't really getting the simplicity that the flat tax crowd strives for.

Double-true.

|3.20.06 @ 4:30PM|#

I hate to admit it, because the argument is so cynical, but Jonathan may be right about the AMT being an engine for change. It can't be "fixed" without making other dramatic changes somewhere. I have been working with the income tax for 20 years, and I am ready to jettison it, but I am very skeptical that we will get true tax reform as long as Congressmen have an interest in dispensing tax breaks in exchange for campaign contributions. A new law might be simple on day one, but it won't be simple on day two, when the distinguished gentleman (or woman) from the state of ________ introduces an amendment to help a business in their district.

The idea of an "AMT alone" system might find favor with Grover and Steve, but it doesn't raise nearly enough revenue (actually, that would probably be OK with them). It all depends upon what you are trying to achieve through tax reform. Grover wants to disable the government from raising taxes effectively so it will (theoretically) be forced to cut spending.

|3.20.06 @ 4:46PM|#

Jonathan: If nothing is done about the AMT, how are tax increases without meaningful entitlement reform a "good thing"?

|3.20.06 @ 4:58PM|#

Jonathan: Also, what does tax reform have to do with a deficit caused by runaway entitlement spending? Or are you saying that since the growing deficit makes AMT "patches" more difficult, that is a good thing because it will bring about tax reform? Why does that sound to me a lot like, "it will be a good thing when the house catches fire because then I can justify getting a better fire extinguisher"?

|3.20.06 @ 5:42PM|#

One of the problems AMT exposes are things like tax-exempt municipal bonds. Say what you will about whether said exemption is a good way to reduce the costs of municipal borrowing, but having decided that it is, why then take that away with an AMT? Because a few people buy them and pay "too little" tax? We should be applauding them for their civic-minded investment in municipal finance, not punishing them. If a tax exemption isn't the way to do this, then be honest and end the tax exemption for future bond offerings, not keep the exemption and add AMT to punish the unpopular.

|3.20.06 @ 6:05PM|#

very off-topic, but, I just noticed that Tim Harford's Reason article on why poor countries are poor is #2 on Reddit. FYI.

TC|3.20.06 @ 6:53PM|#

Lets see, we have a totally messed taxation system today, so lets add another totally messed up alledged solution to it!

Attorneys must have thought up that one! Worse yet, professional politicians that are gaing billions as they are the only ones that understand the mess!

Alternative?

Scrap it! Then enact the Fair Tax proposal. Thay way if the big cats spend, they pay too!

www.fairtax.com

TC|3.20.06 @ 6:54PM|#

OOPS

www.fairtax.org

|3.20.06 @ 7:24PM|#

What am I missing? Do any flat-taxers celebrate the AMT?

Only as a means to raise the general aingst towards taxes in general, thus improving the chances of a sane approach, such as a flat tax, being adopted.

|3.21.06 @ 12:22AM|#

...from a politician's standpoint the AMT has a singular advantage: It increases taxes without requiring anyone to vote for a tax increase.

And without indexing, the AMT is a real prosperity destroyer.

According to Burman, Gale, and Rohaly, by 2010 the AMT will have taken back 29 percent of Bush's tax cuts, and that is just for a start. Taking note of this fact, Democrats may decide that the AMT doesn't need fixing after all.

29%! This is a very strong reason to kill the AMT.

Left in place, the AMT would force blue states to choose between paying a higher share of the federal bill or cutting their own taxes. Either way, Republicans win.

What? If the Dems cut taxes (Probably a huge if), they will likley be more popular for it and the incresed prosperity that will ensue.

The upshot is that the AMT may spur a broad tax reform; it may lay the groundwork for a broad reform...

And such an unintended consequence is the only possible silver lining of this monstrosity

...or it may simply turn out to be a politically tolerable tax increase at a time when the country needs all the fiscal help it can get.

What?? Raising taxes is a help to government power, but it is certainly of no fiscal help to the country.

|3.21.06 @ 12:30AM|#

keith:

What's so wrong with the AMT that would also not be a problem with a Steve Forbes/Grover Norquist style flat tax?

The lack of indexing for inflation!

|3.21.06 @ 12:52AM|#

As we calculate to figure out which type of taxation is less onerous, a worthy endeavor, let's not lose sight of the fact that all taxation is theft and most taxation is a less intrusive form of slavery. This is another fine reason for eliminating, or at least minimizing, taxation.

|3.21.06 @ 6:42AM|#

The only reason "tax reform" has political traction today is because people interpret it as "tax cuts". The problem is that tax cuts are an easier sell than spending cuts, so we have a strong political impetus toward growing deficits and an economy that will eventually look like that of France and Germany.