AMT for all!

Marketplace Staff Apr 10, 2007

AMT for all!

Marketplace Staff Apr 10, 2007


MARK AUSTIN THOMAS: Both Republicans and Democrats hate it, but they haven’t permanently fixed it. We’re talking about the Alternative Minimum Tax and it may be coming to a home near you. The AMT is like a flat tax. The original idea was to ensure the very rich didn’t use loopholes to avoid most federal taxes. But times have changed and now even people who make less than $50,000 a year can be affected. Right now House Democrats are working on a permanent fix to shield everyone except the very rich from the tax. That’s not the right move according to economist and commentator Susan Lee.

SUSAN LEE: I understand why people hate the AMT. It’s not indexed for inflation and so each year it menaces more and more middle-income taxpayers.

But people have been so busy hating the AMT that its considerable virtues have been eclipsed.

I say dump the federal income tax and replace it with the AMT.

Here’s why: The AMT is essentially a flat tax. It has only two rates and many, many fewer deductions and exemptions than the regular income tax. And that’s a good thing.

Under an AMT-only regime, people can save and invest more efficiently. They’ll stop shopping for tax shelters that have little productive value. High-income lawyers and doctors can stop pretending to run sheep farms in their back yards.

In other words, the AMT would be a much more efficient way to raise revenue and much better for economic growth.

The AMT is also progressive. Last year, single taxpayers could exclude the first $42,500 of income from their taxable base. Married taxpayers could exclude $62,500.

Beyond those exclusions, there are two rates: 26 percent and 28 percent.

An AMT-only regime, like other flat-tax schemes, would also be remarkably simple to calculate. Kiss your tax preparation services goodbye.

And there’d be no need for Congress to worry its pretty little head about coming up with a whole new tax reform — the AMT is already here!

But maybe the best thing about the AMT is how easy it would be to improve it.

We could get more progressive by bumping up the exemption amounts. And we could make just one lower rate — say 22 percent.

Obviously, the current situation, with two tax systems, is ridiculous. But with just a few fiddles — including inflation-indexing — the AMT could emerge as a more efficient, very progressive and very simple alternative to the federal income tax.

THOMAS: Economist and commentator Susan Lee.

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