The AMT’s Silver Lining
Brian D. Galle
Boston College Law School
University of Pennsylvania Law School; Erasmus School of Law; PERC - Property and Environment Research Center
October 12, 2010
Regulation, Vol. 33, No. 3, p. 24, 2010
Boston College Law School Legal Studies Research Paper No. 210
The federal Alternative Minimum Tax has potentially salutary – and heretofore unrecognized – effects that counteract pathologies of state budgets over the business cycle. A taxpayer’s AMT liability increases with income, and acts to eliminate federal tax subsidies for state revenue-raising. Thus, as a state’s income grows and the AMT hits more state residents, state spending becomes more expensive in flush times as the federal tax subsidy for state and local taxes is reduced. Conversely, when state fiscal health deteriorates, the federal tax subsidy grows as fewer state residents fall under the AMT, boosting taxpayer support for state spending. This stabilizing mechanism has the potential to overcome problems state politicians face committing to saving during boom times and spending during bust times. This article presents empirical evidence suggesting that the AMT does indeed provide some degree of fiscal stabilization in accordance with micro-theory.
Number of Pages in PDF File: 7Accepted Paper Series
Date posted: October 13, 2010 ; Last revised: November 20, 2010
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