Restoring Fairness and Progressivity to the Income Tax

Progressivity: Once upon a time, Americans accepted a progressive income tax, in part because of an understanding that the wealthy benefited from our democratic institutions and capitalist system. The wealthy therefore owed a fair share of their income to the people as a whole, and they could pay proportionately more because they simply could afford it, without compromising their quality of life. In recent years, this principle has been under attack, and it is time to reaffirm the responsibility of the wealthy to contribute to society as a whole.

Fairness and the Alternative Minimum Tax: The core of our income tax system is an overall belief that on the whole, it is fair. Unfortunately, decades of huge numbers of special interest provisions and tax breaks, and recent tax cuts for the wealthy have undermined this belief. It is not enough to fight each provision one at a time. The way to restore fairness is to cut through the complexity of the tax code, and focus on key principles.

One option is to ensure that the principle of the Alternative Minimum Tax is a reality. For example, the following table shows how we could maintain a progressive and fair tax system, through the Alternative Minimum Tax.

Adjusted Gross Income (AGI) Minimum Tax (% x AGI)

Under $100,000 None
$100-200,000 15%
$200-300,000 20%
$300-400,000 25%
$400-500,000 30%
Over $500,000 35%

Basing the AMT only on the Adjusted Gross Income means that tax shelters, tax breaks, and tax credits, no matter how inventive, could not reduce taxes below this minimum level. This would be fair to all.

A comparable table needs to be developed for corporate taxation. For example:

Corporate AGI Minimum Tax (% x AGI)

Under $5 million None
$5-25 million 15%
$25-100 million 20%
$100-500 million 25%
$500 million - $2.5 billion 30%
Over $2.5 billion 35%

*Note that corporate AGI needs to be defined as net of reasonable business expenses, before shelters, breaks, and other creative accounting methods are applied.

This simplified application of the Alternative Minimum Tax would go a long way toward restoring fairness to the income tax.