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Florida Tax Review

Abstract

Assuming that any attempt to reverse entirely the 2001 and 2003 income and estate tax cuts would meet with insurmountable political resistance, this article argues that there may be a middle road of alternative minimum tax (AMT) reform. Distributive justice principles and a general goal of achieving greater coherence within the overall tax system should guide the reforms: these principles should undergird any assessment of the degree of complexity considered permissible and any balancing of tradeoffs between larger deficits and increases in tax burdens (or lost benefits) for particular groups of taxpayers. Generally, distributive justice will be served if AMT reforms more successfully target higher-income taxpayers, to ensure that they shoulder at least some reasonable share of the national tax burden based on a fuller measure of their true economic income. Coherence will be increased if, whenever possible, any AMT and regular tax changes increase transparency, ensure policy consistency between the regular income tax and the AMT, and avoid unnecessary complexity in both systems. In particular, both fairness and coherence will be enhanced if AMT amendments can completely relieve ordinary taxpayers (intended as a non-technical term to include married taxpayers filing jointly with economic incomes less than $100,000 or single taxpayers with economic incomes less than $50,000) from any AMT burden. At the same time, realistic domestic and international revenue needs demand that the price of AMT reforms be met through significant concurrent changes to the regular tax system -and the disallowance of additional preference items through the AMT system.

The argument proceeds as follows. Part II briefly explains the normative perspective, founded on distributive justice principles and a demand for coherent structure, that I believe should guide tax policymakers in making the difficult choices among possible tax reforms. Part III discusses in greater detail the effects of recent amendments to the Code on progressivity, deficits (and the national debt burden), and the reach of the AMT. Part IV considers the most common arguments for outright repeal of the AMT stemming from the resulting downward creep and concludes that there are strong normative, and practical, reasons to retain the AMT despite its flaws. As an alternative to repeal, Part V proposes specific provisions tore-target the AMT to higher income taxpayers and, acknowledging that this cannot be accomplished solely within the AMT, suggests possible harmonizing changes to the regular tax. Part VI concludes.

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