More Tax Thoughts

People complain about the alternative minimum tax (AMT), and to some extent the complaints are justified. The AMT has crept into fairly low levels of income, and no longer seems well-suited to its original purpose of preventing loophole abuse.

On the other hand, some version of the AMT might make sense as a flat tax, in the sense of not having deductions or credits. As I pointed out a few posts ago, the big computational burden of tax-paying has nothing to do with brackets. Rather, it's very difficult to wade through all the complexities that go into figuring out what your taxable income is (I was echoing a point made by Matt Yglesias). Once you've accomplished that, it's trivially easy to calculate your taxes under either a flat tax or a progressive tax.

So one possible virtue of the AMT is that it wipes out a bunch of those calculations. In practice most people probably do the calculations and then realize that they're caught by the AMT, but that's not a necessary feature of the system. We could just say that above a certain income you don't get any credits, deductions, whatever. It would prevent us from fine-tuning incentives with income tax policy, but I'm not sure that ever made much sense. The only thing I can think of that I might regret eliminating is the deduction for charitable contributions, but that's probably ready for an overhaul anyway (a lot of the money is spent on fairly partisan crap that doesn't deserve a subsidy). A full-blown AMT would certainly save a lot of time, and time is money. Possibly we just need to make sure the tax rates are right, and then let the AMT rip.