In testimony before the House Ways and Means Committee, Michael E. Mares, chairman of the tax executive committee of the AICPA, advocated simplification of the individual alternative minimum tax (AMT) and the simplification or repeal of tax phaseouts.
"The complexity of our tax law has reached the point where many taxpayers and practitioners believe that it is undermining voluntary compliance," Mares told the committee. Taxpayers perceive current tax laws to be unfair. Moreover, the difficulty in administering the laws increases the compliance cost for all taxpayers. The result, he said, is an "erosion of voluntary compliance."
"There are no simple solutions to reducing tax law complexity," Mares said. In his testimony before the committee, however, he made several recommendations for simplifying current tax laws.
Noting that many taxpayers with adjusted gross incomes in the $60,000 to $70,000 range might be subject to the AMT in the future as a result of new credits allowed under the Taxpayer Relief Act of 1997, Mares offered these suggestions:
- Index the AMT brackets and exemption amounts to counteract the impact of the 1997 act and of inflation.
- Apply regular tax credits against the AMT.
- Consider making low- and middle-income taxpayers exempt from the AMT, thereby focusing the tax on its original target, the high-income taxpayer.
Phaseouts of itemized and IRA deductions and personal exemptions are examples of hidden tax rates which add to effective tax rates, Mares said. Simplification could be achieved by eliminating phaseouts. If doing so would create inequities, simplification could also be achieved by providing consistency in the measure of income and the range and method of phaseouts applied.
Mares proposed elimination of the marriage penalty by making phaseout ranges the same for taxpayers who are married filing separately as for single and head-of-household taxpayers.
Mares said simplification of the tax system is important; however, it should not take precedence over revenue objectives or tax policy.