TaxProf Blog

Wednesday, May 5, 2004

The Congressional Budget Office has released a report on the Alternative Minimum Tax, available in both html and pdf. Here is the Introduction:

For more than three decades, the individual income tax has consisted of two parallel tax systems: the regular tax and an alternative tax that was originally intended to impose taxes on high-income individuals who have no liability under the regular income tax. The stated purpose of the alternative minimum tax (AMT) is to keep taxpayers with high incomes from paying little or no income tax by taking advantage of various preferences in the tax code. The AMT does so by requiring people to recalculate their taxes under alternative rules that include certain forms of income exempt from regular tax and that do not allow specific exemptions, deductions, and other preferences. For most of its existence, the AMT has affected few taxpayers, less than 1 percent in any year before 2000, but its impact is expected to grow rapidly in coming years and affect about one-fifth of all taxpayers in 2010. In her 2003 report to the Congress, the Internal Revenue Service’s National Taxpayer Advocate, Nina Olson, labeled the AMT “the most serious problem faced by taxpayers.”

Unlike the regular income tax, the AMT is not indexed for inflation. The accumulating effect of inflation is a key source of growing AMT coverage.

The expanding reach of the AMT imposes costs beyond higher tax liability. Not only must taxpayers complete the regular income tax returns, but more of them will need to complete the AMT forms, whose definitions of taxable income, deductible expenses, and exemptions differ from those of the regular income tax. The required calculations increase both the complexity and time required to comply with tax laws, although computer software may mitigate those costs. Taxpayers’ potential liability for the AMT complicates many of their decisions beyond the tax forms themselves, including when to earn income and when to pay for potentially deductible activities.

A range of options could address the growth of the AMT. At one extreme, extending the exemption level in effect for 2004 would postpone the expansion of AMT coverage. The revenue consequences of doing so would depend on the duration of the extension: extending it just for 2005 would cut revenues by about $18 billion. Another option–indexing the AMT parameters for inflation–would prevent the alternative tax from growing simply because incomes keep pace with inflation and would lower receipts by $370 billion over the 2005-2014 period. At the other extreme, eliminating the AMT altogether would reduce revenues by nearly $600 billion over the next 10 years under current law.

The report was prepared by Roberton Williams of CBO’s Tax Analysis Division with the assistance of Kurt Seibert and David Weiner.

Wednesday, May 5, 2004

The just-released Statistics of Income Bulletin (Winter 2003-04) includes Excise Taxes and the Airport and Airway Trusts Fund, 1970-2002 by Eric Henry. Here is the abstract:

The Airport and Airway Trust Fund instituted on July 1, 1970 has been affected by legislative changes over the years. These include terminating the Aviation Trust Fund in 1980, then recreating it in the Airport Improvement Act of 1982. Further changes were made in 1990, and excise tax transfers into the Aviation Trust Fund were terminated in 1996, but resumed under the Taxpayers Relief Act of 1997. The Aviation Investment and Reform Act for the 21st Century again revised the Fund in 2000. The events of September, 11, 2001, resulted in passage of the Air Transportation Safety and System Stabilization Act of 2001, under which airlines were able to postpone excise tax payments due between September 10, 2001, and January 15, 2002, until the latter of the two dates.

The net effect of these changes was to increase receipts from aviation-related excise taxes from $564 million in FY 1971 to $9,090 million in FY 2002, with a peak of $10,395 million in FY 1999. The FY 2002 receipts represented 13.1 percent of all excise taxes as compared to 3.3 percent for FY 1971. The Airport and Airway Trust Fund excise taxes were a reliable source of revenue for the Nation’s aviation systems during the latter part of the 20th century. Receipts from these taxes continue to be the major source of revenue for the Federal Aviation Administration (FAA).

For related excise tax statistics, see here.

Tuesday, May 4, 2004

The just-released Statistics of Income Bulletin (Winter 2003-04) includes Projections of Returns That Will Be Filed in Calendar Years 2004-2010 by Terry Manzi. Here is the abstract:

The Internal Revenue Service estimates that the total number of tax returns to be filed in 2004 will reach 226.8 million. With an estimated annual growth rate of 1.6 percent under current tax law and other planning assumptions, the total number expected by 2010 should reach 249.7 million. These totals are comprised of “primary” returns (mostly individual income tax and employment tax returns) and “supplemental” returns (mostly amended returns and documents filed by individuals and corporations requesting extensions of time to file returns). Primary returns account for 92.2 percent of the grand total.

The most recent projection of electronically-filed (“e-file”) individual income tax returns calls for 59.8 million to be filed in 2004 (out of 131.6 million total of all individual income tax returns); these returns would otherwise be filed on “paper” forms, mostly “short forms” 1040A or 1040EZ. Of the 59.8 million electronically-filed total, about 55.8 million are expected to be “standard” e-file returns, transmitted through an authorized third party, such as a tax practitioner. The remaining 3.9 million should be “TeleFile” returns, filed by touch-tone telephone. Standard e-file returns are expected to increase at an annual rate of 8.9 percent through 2010.

TeleFile volumes, unlike standard e-file, are expected to drop an average 0.8 percent by 2010 due to migration to other e-file options. As electronically-filed returns increase, the total number of paper individual income tax returns should drop to about 49.4 million by 2010, with the corresponding number of electronically-filed returns increasing to 92.4 million.

For a related Excel table of data, see here. For more return projections, see here.

Over the coming week, TaxProf Blog will summarize the remaining Featured Articles and Data Releases in the latest SOI and provide links to the full reports and accompanying tables and statistics.