Count Capital Gains in AMT, Unify Higher Education Credits
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Description
Two assignments of the Volcker task force are to identify specific measures to close loopholes that help create the $300 billion tax gap and to simplify the code. I'll offer one of each. Closing the tax gap may mean reducing tax evasion and loopholes, but it also may mean raising revenue, because one of the Obama administration's goals is to cut the budget deficit in half. Closing the tax gap through enforcement alone will not do the trick; hence, raising rates or widening the base may be necessary. Neither is politically palatable, and doing both simultaneously might be political suicide. But there is a way to accomplish the goal that is not so transparent and might fly under the political radar: Include capital gains in the alternative minimum tax base. That suggestion rests on the assumption that Congress will not repeal the AMT. Even though the AMT is everyone's favorite whipping boy, it raises a lot of revenue. Indeed, the revenue from it is far greater than the tax gap, and AMT repeal would be a huge tax cut for the wealthy. So even if lawmakers are looking for ways to raise revenue to reduce the deficit, repealing the AMT will not be on the table. So instead let's return the AMT to its original function of closing loopholes and reducing tax preferences. The first AMT, adopted in 1969, increased the effective tax rate on capital gains. The Tax Reform Act of 1986 eliminated the capital gains preference, and as a result, capital gains disappeared from the AMT base. When the preferential rate made a quick reappearance, Congress failed to reinsert it into the AMT. Now would be a good time to do that.
Source Publication
Toward Tax Reform: Recommendations for President Obama’s Tax Force
Source Editors/Authors
Tax Analysts
Publication Date
2009
Recommended Citation
Schenk, Deborah H., "Count Capital Gains in AMT, Unify Higher Education Credits" (2009). Faculty Chapters. 1363.
https://gretchen.law.nyu.edu/fac-chapt/1363
