The Camp Tax Reform Plan

I'll have a lot to say in the coming days and weeks about the Camp Tax Reform plan.  My focus will be on the provisions in the bill the media are not talking about, particularly corporate taxes and changes to the international tax rules.

But I do want to focus now on one thing I noticed in the revenue estimates for the bill, which we should pay attention to when we hear the rhetoric on what the effects of various aspects of the bill will be.

I was kind of shocked when I saw that the Joint Committee on Taxation estimated that one aspect of the bill - the repeal of the alternative minimum tax - would reduce projected federal tax liabilities by over $1.3 trillion for the period 2014 through 2023 (see page 4 of this table).  The projected reduction in revenues from cutting the regular tax rates is only $544 billion.  So the AMT number seems just tremendously high to me.

And sure enough, I did a little looking and found this report from the Tax Policy Center compiled last August showing that, after the amendments to the AMT made in 2012, the projected AMT over the same period would be $385 billion.  That's a huge difference!  So what accounts for this?

My guess is that this has something to do with how the JCT models the revenue effects of various proposals that interact with one another.  In this presentation on how they model revenue effects (page 19), the JCT states:

• Many tax bills make multiple changes to the tax code that interact with each other, such as

• Simultaneously changing tax rates and adding or eliminating deductions, or

• Adding a category of activity that is eligible for an expiring tax credit while extending the credit.

• A revenue table with separate estimates for each provision in such a bill accounts for interactions either by 

• Adding a separate line for interaction effects or

• Incorporating the interaction effect between the two provisions into the estimate of one of the provisions.

• Incorporating the interaction effects into the estimate of one of the provisions is referred to as "stacking" the interacted provision after the non-interacted provision 

• For example, for a bill that reduces tax rates and changes deductions, the estimate of the tax rate change may be "stacked first" (without the interaction effect) while the deduction estimates ("stacked after the rate change" would incorporate the interaction effect by being estimated after the rate change.

OK, I understand that.

But still, I can't possibly fathom how they get to such a huge effect for the AMT.  I mean, standing alone, the effect of repealing the AMT could be no higher than the $385 million current projection.  And think about the other changes they are proposing.  First, they are eliminating deductions.  Eliminating deductions reduces the difference between the AMT base and the regular taxable income base.  Stated differently, one effect of eliminating deductions is to reduce the AMT.  Thus, if you model the effect of eliminating deductions first, the effect of eliminating the AMT goes down.

The other major change is, of course, to the regular tax rates. Granted, reducing the regular tax rate will have the effect of increasing the AMT if no other changes are taken into account.  But the effect of reducing regular rates is shown at to be $544 billion over the ten year period.  Are you really telling me that the effect of changing the regular tax rates - absent any other changes - would be to reduce regular taxes by $544 billion, but increase the AMT by $950 billion?  That makes no sense at all.

So what is really going on here?  I think they're fudging the numbers.  I think that the Republicans don't want to show that the cuts in regular rates will reduce revenues by $1.5 trillion, so they are dumping a huge amount of the revenue effect into the obscure AMT line hoping nobody would notice.

Maybe I'm wrong, but somebody has to convince me otherwise.