FAULT REGULAR TAX, NOT AMT
May 22, 2007
Congress should not repeal or radically change the Alternative Minimum Tax (AMT) but instead reform the regular tax code so that it allows less income to go untaxed, according to a new Tax Foundation study.
According to the report's authors:
- The overriding flaw of our income tax system is the vast flow of funds that escapes taxation through loopholes in the tax code; The AMT corrects a small portion of this problem, albeit imperfectly.
- The AMT is often redundant and complex, but the basic idea behind it -- taxing a broader base at lower rates -- is a sound one that should serve as a guide to tax policy.
- Most of the AMT "fixes" currently under consideration would move us in the wrong direction -- shrinking the tax base and taxing what is left at even higher rates.
- The tax provision that triggers the most AMT returns is the state-local tax deduction, a tax subsidy with no justification in the principles of taxation.
- It subtracts so much from the tax liabilities of people in the $75,000 to $500,000 income range that many are forced to re-calculate under the AMT which correctly disallows the deduction.
- Every year tax-exempt bonds trigger AMT returns while providing a windfall to the nation's highest-earning investors of roughly $20 billion.
The key to fixing the AMT lies in the regular tax code, says the Tax Foundation. By curtailing its myriad exclusions, deductions, exemptions, and credits we could raise the same revenue with lower tax rates, reduce the number of filers affected by the AMT, improve the overall quality of the tax system, boost the nation's economic well-being, and improve tax fairness.
Source: "New Study on AMT Finds More Fault with Regular Tax," The Tax Foundation, May 17, 2007.
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