The Subcommittee on Taxation and IRS Oversight of the Senate Finance Committee holds a hearing today on Blowing the Cover on the Stealth Tax: Exposing the Individual AMT at 12:30 p.m. in 628 Dirksen Senate Office Building. Here is the witness list:

• Robert Carroll (Deputy Assistant Secretary for Tax Analysis, Treasury Department)
• Douglas Holtz-Eakin (Director, Congressional Budget Office)
• Nina E. Olson (National Taxpayer Advocate, Taxpayer Advocate Service)
• Leonard E. Burman (Senior Fellow & Co-Director, Urban-Brookings Tax Policy Center)
• Kevin A. Hassett (Director of Economic Policy Studies, American Enterprise Institute)
• Carol C. Markman (President, National Conference of CPA Practioners)

In connection with the hearing, the Joint Committee on Taxation has issued Present Law And Background Relating To The Individual Alternative Minimum Tax (JCX-37-05) (20 pages).  Here is part of the Executive Summary:

As a separate tax system, the AMT should be analyzed as any other tax system–on the basis of equity, efficiency, effect on economic growth, and simplicity. In addition, the separate preferences and adjustments within the individual AMT should be subject to the same analysis.

To assess whether the AMT promotes overall equity depends on who bears the burden of the tax. There is disagreement among economists as to who bears the burden of the portions of the AMT relating to business activities, making assessments of the effect of the AMT more difficult for such taxpayers. To the extent the AMT tends to raise the average tax liability of higher income taxpayers, the individual AMT might increase the overall progressivity of the tax system.

A tax system is efficient if it does not distort the choices that would be made in the absence of the tax system. No tax can be fully efficient, and thus the efficiency of the AMT is best judged against the regular income tax. The AMT imposes marginal tax rates on income that differ from those under the regular income tax. To the extent a taxpayer faces higher marginal rates under the AMT, the AMT would be more distortionary with respect to the individual’s decisions to supply labor and to save and invest. The AMT raises certain taxpayer’s marginal tax rates and lowers others, and thus it is not clear the extent to which the AMT induces additional distortions. The AMT measures certain investment income differently than the regular tax, possibly discouraging investment in those activities relative to other activities for some taxpayers. However, it is not necessarily the case that the regular tax treatment of such items is preferable on efficiency grounds to the AMT treatment, and thus the overall effect of the AMT on the efficiency of investment choices is not clear.

The AMT adds to complexity because it requires a calculation of a second income tax base and computation of a tax on that base. Some argue that this effect is reduced because of the use of tax preparation software. Some counter this by saying that a tax system should not be so complex as to require the use of software by many individuals.

Update:  Douglas Holtz-Eakin’s testimony is available here.