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The AMT’s Silver Lining

7 Pages Posted: 13 Oct 2010 Last revised: 20 Nov 2010

Brian D. Galle

Georgetown University Law Center

Jonathan Klick

University of Pennsylvania Law School; Erasmus School of Law; PERC - Property and Environment Research Center

Date Written: October 12, 2010

Abstract

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.

Suggested Citation

Galle, Brian D. and Klick, Jonathan, The AMT’s Silver Lining (October 12, 2010). Regulation, Vol. 33, No. 3, p. 24, 2010; Boston College Law School Legal Studies Research Paper No. 210. Available at SSRN: https://ssrn.com/abstract=1691080

Brian D. Galle (Contact Author)

Georgetown University Law Center ( email )

600 New Jersey Avenue, NW
Washington, DC 20001
United States

Jonathan Klick

University of Pennsylvania Law School ( email )

3501 Sansom Street
Philadelphia, PA 19104
United States
2157463455 (Phone)

Erasmus School of Law ( email )

3000 DR Rotterdam
Netherlands

PERC - Property and Environment Research Center

2048 Analysis Drive
Suite A
Bozeman, MT 59718
United States

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