Why AMT and No AMxT? A Comment on Hines and Logue

Abstract

In Understanding the AMT, and Its Unadopted Sibling, the J. Legal Analysis (Advance Access: October 8, 2014), Jim Hines and Kyle Logue propose an interesting new theory about why the US has an Alternative Minimum Tax (AMT). The function of the AMT, they propose, is to enable Congress to adopt a progressive rate schedule and to accommodate heterogeneous preferences for tax expenditures. Hines and Logue write that By taxing a broad definition of income, the AMT makes it possible to have a tax system that both encourages certain activities with generous tax preferences and maintains a semblance of distributional equity. This rationale, they suggest, also favors the adoption of an Alternative Maximum Tax (AmXT), which would cap tax liabilities of individuals with very few preference items and thereby afford Congress greater flexibility in designing the income tax. This analysis is certainly novel, since most of the existing tax literature is opposed to the AMT. The problem, however, is that Hines and Logue have no explanation why Congress adopted the AMT but not the AMxT. When a novel theory explains part but not all of the observed phenomena, it behooves us to take another look at the theory. The following suggests another explanation for the AMT, which I believe is more consistent with Congress' intent. It also suggests a reason to retain the AMT even if Congress does not adopt the AMxT.