Over a decade ago, Democratic Senator Bill Bradley opined:
A minimum tax is an admission of failure. It demonstrates not only that the system is broke, but also that Congress doesn’t have the guts to fix it.*
How does a minimum tax come about? In my view, there are six steps:
Step 1: Congress and the president decide on a tax base (income, consumption, both, etc.) and then set tax rates. It should stop right here, but it doesn’t.
Step 2: Congress and the president decide to encourage certain behavior by changing the terms of Step 1. For example, to encourage home borrowship ownership, they allow people to deduct mortgage interest payments from their taxable income. Or to encourage energy efficiency, they allow people to claim credits to offset the cost of certain government-ordained products. Or to encourage fecundity (I guess), they allow people to claim credits for having more kids.
Step 3: Congress and the president repeat Step 2 over 200 times.
Step 5: Congress and the president throw up their hands, admit that they will never actually eliminate the loopholes and lower rates. Instead, they invent a whole new tax code, morph it on top of the current tax code and call it a “minimum tax.”
*Quoted in Harvey S. Rosen, Public Finance, 6th Edition, (New York: McGraw-Hill, 2002), p. 358.