By sheer dollars alone, the largest impact of the Alternative Minimum Tax is to deny many taxpayers the deduction for the taxes they paid to their state and local governments under § 164 of the Internal Revenue Code. This Article provides a fine-grained analysis of the overall fairness of the state-and-local-tax deduction—and, by implication, the fairness of its partial repeal through the Alternative Minimum Tax. I offer for the first time a close examination of how newly understood limits on taxpayer mobility and rationality might affect individuals’ choices of bundles of local taxes and local-government services, which in turn informs our assessment of the “fairness” of those exchanges. Many of these lessons can be generalized to consumer choices more generally. In addition, I track the reciprocal benefits and burdens that flow between the national government and local governments—again, although the influx or outgo of billions of dollars surely affects how the federal tax system should account for the outputs of local government, scholars have neglected that question. Finally, I note that § 164, and therefore the Alternative Minimum Tax, can have serious effects on federal–state relations, such that the debate over both provisions is in many ways a debate not only over fairness but also about federalism.
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