Taxes: The Battle Over AMT

It is estimated that the Alternative Minimum Tax, if left unchanged, will raise about $50 billion this year for the Federal Government. This is a tax implemented by Congress several years ago to make sure wealthy individuals pay their "fair share" of taxes. This tax was not indexed to inflation and is now affecting many members of the not-so-wealthy middle class. There is considerable ongoing debate about what to do about the AMT in Congress, because it is not fair to leave it as it is. The Republicans would like to either repeal the tax or mend it for another year. The Democrats would like to change the tax so that more of the tax is paid by the wealthy and eliminate the Republican tax cuts from 2001 and 2003,which are set to expire in 2010, as a way to pay for the AMT fix.

Congress has consistently over-estimated it's ability to implement a "fair" tax code, and under-estimated the impact on the American people and our economy of constantly changing the code. The Alternative Minimum Tax is a good example of why it is time for a change in how Congress views taxes. We believe the Government has proven it's inability to create a fair tax system. Instead, they should simplify the code and beef up the enforcement division of the IRS. A simpler tax code would help to narrow the tax gap and the AMT could be eliminated without having to fret over the $50 billion in lost revenues it generates this year.

The Wall Street Journal on March 21,2007 had an article discussing the current Tax Gap because of under-reporting of taxes due. This amount is estimated to be $345 billion. The table/chart below shows the composition of the tax gap and the decline in the number of IRS enforcement agents over the last 10 years.



We believe much of this under-reported income is caused by the complexity of the existing tax code. The first step for Congress should be to simplify the code. The current system of graduated brackets, deductions, and exceptions creates incentives for taxpayers to find ways around paying taxes. The more complicated we make our tax system, the more money falls through the cracks. For example, a flat tax with no deductions would be simple and easy to implement and enforce. Some may say that a flat tax would be unfair. Our answer to that is: "How fair is it that we are paying taxes and there are $345 billion of taxes owed that others aren't paying?"