Hooray for the AMT?

Normally, when you see the words "alternative minimum tax," they are located near words such as "reform," "dreaded" and "outdated."

The widely loathed levy -- created some 35 years ago to snag rich people who tried to dodge paying federal income taxes -- has been at the top of many CPAs' wish lists for tax reform for years, and has gained the attention and hatred of many Americans as it has increasingly snared middle class taxpayers.

In her 2003 annual report to Congress, IRS National Taxpayer Advocate Nina E. Olson designated the unloved AMT as the No. 1 problem facing individual taxpayers. According to that same report, in 2010, the AMT will affect nearly 32 million taxpayers, the majority of whom will have incomes under $100,000.

So, it was somewhat surprising to see an article billing one of the most-hated accounting-related acronyms as, "A promising alternative." Yet that was the title of a thought-provoking editorial in the latest issue of The Economist, praising a plan offered by Yale University tax expert Michael Graetz that proposes using the AMT as a vehicle for tax reform.

"By 2009, it will be less costly to ditch the income tax and keep the AMT than to repeal the AMT and carry on with the income tax," the article declares. And Olson's report echoes that sentiment, citing Urban-Brookings Tax Policy Center research that shows that by 2008, it will cost less to repeal the regular income tax structure and keep the AMT ($74 billion) than to abolish the AMT ($85 billion).

Graetz's plan involves replacing the income tax with the AMT, but with an exemption of $100,000 per family and a single rate of 25 percent, as well as a value-added tax of 10 percent to 15 percent to make up for lost revenue.

As The Economist points out, the plan involves a wholesale change to America's tax system that may render it "politically unrealistic." And that is probably understating the case.

But who knows, if Graetz's idea catches on with enough people, maybe the AMT could lose its place among the most reviled provisions of the tax code and develop a fan club, with the angry cries of damnation and calls for reform replaced by cheers of "Hooray for the AMT!"

For reprint and licensing requests for this article, click here.
MORE FROM ACCOUNTING TODAY