SU There Should Be an Amalgamation Between the AMT & TMT Tax Systems Analysis
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Thanks to AMT, the US basically has two tax systems. Do you think the US should get rid of AMT and just have one tax system for all people that is a merger of the rules for AMT and TMT? Why or why not?
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I do not believe there should be a merger between the AMT and TMT tax systems. The rules associated with these systems were designed to accommodate a specific group of taxpayers for specific reasons. Unfortunately, under the regular tax system, TMT, many high-income taxpayers paid a small amount of taxes or none at all. They have the additional cash for donations, charitable events, businesses, and other investments. As a result the alternative minimum tax (AMT) was developed to disallow certain deductions. Those with lower-incomes paid more, which seems unjust considering their financial status. Why should taxpayers who make less, pay more?
The Alternative Minimum Tax (AMT) was created to ensure that high income taxpayers were at least paying a minimum amount of income tax. This is done mainly by disallowing certain deductions that are allowed under the regular tax system. These deductions were created by lawmakers for taxpayers to use but, now certain taxpayers are being told that they can’t use those deductions because they make too much money. Under the current system there are many taxpayers that have to calculate their tax liability twice, once under the regular tax rules and again under the AMT (Muresianu, 2021).
I think that there should be one tax system with combined rules from both the AMT and the TMT. Therefore, everyone is entitled to use the same deductions and there will be only one computation required to compute the tax liability. The deductions that are allowed for lower income taxpayers should be allowed for higher income taxpayers as well.
The alternative minimum tax (AMT) sets a floor on the percentages of taxes that a filer must be the government. This was initially put in place to ensure that taxpayers who reduced their tax amount from tax breaks were still paying the floor amount. It requires taxpayers who fall into the income range calculate their taxes twice and then pay the higher of the two (IRS, 2022). The 2017 already greatly increased the number of households exempted from AMT, even if only temporarily. “The AMT only has two tax brackets at 26 and 28 percent and as a result eliminating the AMT would reduce economic growth” (Muresianu, 2021). The Tax Foundation points out that the model for reduced growth does not consider the compliance costs that are imposed on the taxpayers to complete two calculations.
Tax preparers and filers are faced with the burden of maintaining a dual system in some of these cases and it may not even be beneficial. “AMT generates little revenue compared to the ordinary individual income tax but significantly increases tax code burdens for a subset of taxpayers” (Eastman, 2019). The best solution may be to combine the AMT into the TMT or by reducing the tax expenditures that allow taxpayers to reduce their taxable income. This would require tedious evaluation to determine which expenditures should stay and which should go and there may be some backlash from groups that benefit from the breaks. However, eliminating AMT altogether is not the best solution because it will reduce the ability to capture taxes from that subset. A broad reform would be necessary to fix the larger issue, but in the interim, it would be beneficial to expand exemption and the exemption phaseout threshold permanently (Eastman, 2019).
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