Question

The AMT can be traced to the end of the Lyndon Johnson presidency and the beginning of Richard Nixon’s in 1969. The theme of the AMT resonates to this day, though, as the tax is characterized as a way to ensure that all taxpayers pay fair share toward the operations of the Federal government. Is not the presence of an AMT itself an admission by Congress that it cannot design a tax law that accommodates the circumstances of all taxpayers? If a soak-the-rich approach is desired, a number of popular tax deductions and credits would need to be repealed, but this would also raise the taxes of those in the middle- and lower-income classes. If various deductions and credits are “good for the economy,” in that they increase the disposable income of U.S. citizens, should not wealthy taxpayers also benefit from these tax incentives? Could you support a system that would assess one type of income tax on low- and middle-income taxpayers and a completely different system that would apply to those of significant wealth? Is it discriminatory to assess higher taxes from those of greater means, as an AMT does? Or is it unfair that wealthier taxpayers can reduce their effective tax rates with tax planning techniques, thereby forcing Congress to use an AMT as a corrective device? Can’t Congress fix the Federal income tax so that an AMT is not needed?

Answer 1

I will try to answer your questions starting from the first all the way to the end -

Note: All these are open to interpretation questions, hence i have answered below from my point of view.

1. No, presence of AMT itself is not an admission by Congress that it cannot design a tax law that accommodates the circumstances of all taxpayers. Infact, the very essence is the face that they take into consideration the circumstances of all tax payers. When there is a world of diffference between the income of lower/middle income tax payers and the significantly wealthy ones, applying the same provisions to both would be unfair. For example, as pointed out in the question, for significantly wealthy people, they always have the means to perform tax planning and lower there incomes, whereas the lower/middle ones would not be able to do the same as easily.

2.  If various deductions and credits are “good for the economy,” in that they increase the disposable income of U.S. citizens, should not wealthy taxpayers also benefit from these tax incentives?

If they should benefit, to what extent? There has to be a balance in the economy, if the wealthy taxpayers also benefit in the same proportion as lower/middle income taxpayers, then no doubt it would benefit the economy, but it would drive a wedge between the rich and the poor. The rich will get richer and poor will be at the same level. Besides, by providing the various deductions and credits to only lower/middle income taxpayers, the government is only trying to increase the basic standard of living. The rich dont need the governments help with that.

3. Could you support a system that would assess one type of income tax on low- and middle-income taxpayers and a completely different system that would apply to those of significant wealth?

Yes, because of the reasons as stated in 1 and 2 above.

4. Is it discriminatory to assess higher taxes from those of greater means, as an AMT does? Or is it unfair that wealthier taxpayers can reduce their effective tax rates with tax planning techniques, thereby forcing Congress to use an AMT as a corrective device?

I wouldn't say its discriminatory, rather it is to maintain a sort of equality when it comes taxation, and yes, the ability of wealthier taxpayers to use reduce their effective tax rates with tax planning techniques is one of the major reasons forcing congress to use AMT as a corrective device.

5. Can’t Congress fix the Federal income tax so that an AMT is not needed?

They could, but that would make interpretation of tax laws in the country a whole lot more complicated than it already is, which is why using AMT as a corrective device is a better option.