NINA OLSEN ON THE DREADED AMT

Here are excerpts from Nina Olsen’s 2012 Annual Report to Congress concerning the dreaded Alternative Minimum Tax (AMT).  I wholeheartedly agree with her recommendation!

“The Alternative Minimum Tax Corrodes Both the Tax System and the Democratic Process -

Problem

The individual Alternative Minimum Tax (AMT) was originally enacted to ensure wealthy persons paid at least some tax. Because the AMT is not indexed for inflation {it now is – rdf}, limited to high income taxpayers, or focused on tax loopholes, however, it increasingly penalizes middle income taxpayers for having children, getting married, or paying state and local taxes while allowing thousands of millionaires to pay no tax at all. The AMT is complicated and burdensome, even for those who are not subject to it. Many taxpayers must fill out the lengthy AMT form only to find they owe little or no AMT after all.

Analysis

The AMT requires taxpayers to compute their taxes twice — once under the regular tax rules and again under the AMT rules. If the ‘tentative’ AMT liability exceeds the regular tax liability, the taxpayer pays the difference as AMT. Thus, the AMT reduces the transparency of the tax system, making it more difficult for nearly everyone one to predict what they will owe.  

The AMT is difficult to repeal because it is projected to raise a large amount of revenue. However, AMT patches have always prevented the AMT from raising these projected amounts. In other words, we have a law that grants popular tax benefits (the regular tax code), another law (the AMT) that eliminates the benefits, and then another law that undoes the elimination of benefits (the patches), usually at the last minute — a legislative Rube Goldberg contraption of unnecessary complexity. In addition, the AMT reduces the transparency of the tax reform debate. For example, any revenue estimate for the proposal must be compared to the illusory revenue supposedly generated by expiration of the AMT patch under current law. Thus, the AMT corrodes the both the tax system and the democratic process.

Recommendation

Permanently repeal the AMT.”

TTFN