Tax Simplification and the Alternative Minimum Tax

Abstract:     
Curtailment or even repeal of the alternative minimum tax (AMT), the author believes, is only a matter of time. Due to inflationary bracket creep, the individual AMT in particular has an everwidening reach that Congress is unlikely to find politically tolerable. However, he notes, clear thinking about the AMT requires decoupling simplification issues from those of the substantive policy change that would result from stand-alone curtailment or repeal. A relatively policy-neutral repeal, involving such changes to the regular tax as a reduction in the preferences that the AMT targets, might be preferable to straight repeal.

Offsetting changes to the regular tax may be desirable, says Shaviro, even if the AMT is merely scaled back, such as by indexing its exemption amounts and phaseout thresholds. He concludes that the case for such offsets is weaker, however, with regard to the elimination of clear defects in the AMT, such as its providing no adjustment for family size and wholly disallowing miscellaneous itemized deductions.

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