Title

The Individual Alternative Minimum Tax: How Does it Affect the Principle of Progressivity?

Date of Award

2007

Document Type

Dissertation

Degree Name

Doctor of Science in Management Systems (Sc.D.)

Department

Management

First Advisor

Armando Rodriguez

Second Advisor

Steven Shapiro

Third Advisor

Scott Lane

LC Subject Headings

Alternative minimum tax, Progressive taxation

Call No. at the Univ. of New Haven Library

AS 36 N290 Mgmt. Syst. 2007 no. 1

Abstract

The tax policy of the United States is based on the need to raise revenue to operate the government and to support programs. Tax policy in addition to raising revenue is an attempt to redistribute wealth. This requires that tax burdens be applied equitably among the different levels of income in the population.

The Alternative Minimum Tax was enacted in 1969 to reduce the number of high-income taxpayers that pay no individual income tax. The Alternative Minimum Tax has met that task, especially under revisions enacted in the 1986 Tax Reform Act. However, the regular individual income tax has been revised in the past decade reducing marginal rates and increasing tax credits and deductions for the benefit of specific taxpayers. Many if not all of these deductions and credits are tied to income levels (floors and ceilings). Therefore cost of living increases, adjusted annually, are enacted in order to curtail what is known as “creeping tax rate” inflation. While regular income tax rates have been reduced and deductions and credits adjusted for inflation, in future years many lower and middle-income taxpayers will be subjected to the Alternative Minimum Tax because of Congress’ failure to adjust the deductions and credits related to the Alternative Minimum Tax.

The primary objective of this study is to comprehensively review how the Alternative Minimum Tax affects vertical and horizontal equity of the individual income tax system. Specifically, the Alternative Minimum Tax will be looked at for the year 1999 to evaluate the impact of the Alternative Minimum Tax on progressivity of the income tax structure.

By using the 1999 Public Use Tax File, prepared by the Statistics of Income Division of the Internal Revenue Service, this dissertation will show that the Alternative Minimum Tax does create vertical equity. However horizontal equity is affected by the Alternative Minimum Tax in that individuals with the same income could ultimately pay federal income taxes using different rates and methods because of the source of their income and deductions, e.g. wage income versus investment income and deductions such as the number of dependants and interest paid on home mortgages.

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