In today's NYT, New York-based writer Amy Sohn has an op-ed entitled "How the Tax Code Hurts Artists." She notes in particular that the alternative minimum tax (AMT) "hits a disproportionate number of actors, screenwriters, and directors" because it denies deductions for employee business expenses and state and local taxes:
"Most unionized entertainment professionals receive their income as wages, which means that on paper, they're employees. But unlike most other groups of workers, entertainers must pay a hefty chunk of their income (around 30 percent) to obtain and negotiate work. This is in the form of commissions to agents (10 percent), managers (10 to 20 percent) and lawyers (5 percent); job-seeking travel; office or rehearsal-studio rental; business meals; union dues; coaching and classes; advertising and publicity; and research materials.
"Because of where their work is concentrated, entertainment workers also tend to live in high-tax states like New York, Illinois, and California."
I know a bit about this issue, as I worked on it (as a junior Congressional staffer) when the AMT in its current form was created, as part of the Tax Reform Act of 1986. Not only is Sohn right that it makes no sense to deny significant employee business deductions under the AMT, but we on the staff heard about it at the time, We specifically met with people representing actors et al who complained about this very problem.
We were sympathetic, but we couldn't do anything about it (given that we were just staffers executing someone else's policy calls), I would say for the following four reasons:
(1) It would have cost revenue, and every last nickel from the AMT was being counted on to make the overall revenue estimates work.
(2) The more skeletal prior version of the AMT didn't provide such deductions, and it was being made "tougher," not loosened,
(3) The Treasury and Congress had been targeting penny-ante employee business and miscellaneous itemized deductions, on the view that a lot of bogus junk was being claimed, plus the view that eliminating such items was desirable simplification even if claiming a nickel here or a dime there was substantively meritorious. But this was not responsive to actors and such, who, as we were told at the time, often had very high expenses in this category, reflecting that their work was quite differently structured than that of most other "employees."
(4) Whichever Congressman or Senator raised the issue - and I believe someone from New York, Illinois, or California did - either didn't have enough marginal clout to get this addressed, or exercised such clout as he or she had at different margins instead of this one. You can't get everything you want if you are, say, a junior coalition member.
The state and local tax deductibility issue, of course, is normatively more complicated. And, though presumably not distinctively an issue for actors in particular, the AMT also errs in not offering personal exemptions for dependents - clearly an important input to what, for want of a better term, one might follow convention and call "ability to pay."
Glad to see this issue getting attention in the NYT, as it is a meritorious one.