This afternoon at 4, I'll be participating in a panel discussion at NYU Law School, with economists Len Burman and Rosanne Altshuler along with colleague Lily Batchelder, concerning the alternative minimum tax (AMT). Then Len and I, among others, will be discussing the AMT at the American Enterprise Institute in Washington next Monday (April 16) at 9 am.
One of the points I plan to make across the two sessions (where my remarks will be quite differently focused) is that there actually is a case for having an AMT, but only in what turns out to be an alternative political economy universe. I wrote about this back in the day (1987 in Taxes Magazine, and a 1989 U of Chicago Law Review article called "Selective Limitations on Tax Benefits"), making the following two points:
(1) If a provision like the AMT mainly denies tax benefits that ought to be disallowed generally, one would have to be craxy NOT to want to trade it in for straightforward base-broadening and no special rule or back-up tax system. E.g., if the AMT denies half the tax benefits from stupid provision X, replacing the AMT with straightforward, across-the-board 50% reduction in the scope of X is likely to be much better policy.
(2) If such a trade-in for the indirect base-broadening effects of the AMT is not politically feasible, then having it might be better than repealing it, depending on the relative magnitude of the distortions it reduces by cutting back X and the new ones it creates via its specialized method of operation.
At the time, I thought it plausible that this line of thought might make a decent case for having some sort of AMT, albeit based purely on the political economy problem of trade-in's unfeasibility. But 20 years later the AMT doesn't seem to be functioning that way, except via the historical legacy of its denying itemized deductions for state and local taxes. Its denying the full benefit of, say, the 2001 rate cuts is not quite the same proposition. Its hit on personal exemptions and on the so-called miscellaneous itemized deductions makes the effective composite tax base worse, not better.
The question now is simply how to get rid of it without making the fiscal gap even bigger or overall distribution less progressive. And here the answer is simple: there is no way to do this until we have two responsible political parties capable of bargaining with each other, reasonably and in good faith and with a shared commitment to solving problems. 2009, anyone?