Thursday, December 20, 2007

Is the AMT so bad?

The House passed a one-year patch for the Alternative Minimum Tax, but failed to fund it. I am not sure that the AMT is actually so bad. It both removes deductions (that tend to be distortionary), and as such broadens the tax base. At the same time, it lowers the marginal tax rate, which improves incentives. Because it doesn't kick in until a household has well above median income, it is progressive over some range of the income distribution.

Larry Summers is saying a temporary tax cut is necessary to stave off recession, but he is talking about something more broad-based than this--I am not sure how stimulative a tax cut for those earning more (usually a lot more) than $75K would be.

1 comment:

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