[Congressional Record Volume 147, Number 41 (Monday, March 26, 2001)]
[Senate]
[Pages S2899-S2900]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. HUTCHINSON (for himself and Mr. Bond):
  S. 616. A bill to amend the Internal Revenue Code of 1986 to repeal 
the alternative minimum tax on individuals, to raise the exemption for 
small businesses from such tax, and for other purposes; to the 
Committee on Finance.
  Mr. HUTCHINSON. Mr. President, today I am proud to join with the 
Chairman of the Senate Small Business Committee, Senator Kit Bond, in 
introducing the Real AMT Relief Act of 2001. This legislation is 
intended to provide the hard working taxpayers of America relief from 
the onerous Alternative Minimum Tax, AMT.
  The AMT, set up more than 30 years ago to help ensure that wealthy 
taxpayers paid their fair share of taxes, is hitting middle-income 
families the hardest. Most vulnerable are the hard working taxpayers 
with several children, interest deductions from second mortgages, 
capital gains, high state and local taxes, and incentive stock options.
  While only 19,000 people paid the AMT in 1970, roughly 1,000,000 
taxpayers had to pay it in 1999. According to the Joint Tax Committee, 
it is estimated that by 2011, more than 16 million taxpayers will have 
to struggle with the AMT.
  Another group of taxpayers being slammed by the AMT are America's 
small business owners. As my good friend Senator Bond has said, the 
complexity of the AMT forces many small businesses to spend valuable 
resources on tax professionals and high priced accountants to determine 
whether or not the AMT applies to them. Many small business owners in 
Arkansas have told me that instead of spending the time and the money 
trying to comply with the AMT, they would rather use those resources to 
hire new workers and provide benefits to their workers.
  The AMT has also had a dramatic impact on high tech communities all 
across the country. The recent stock market collapse has left many high 
tech employees, from executives to the rank and file, facing enormous 
AMT bills based on long-gone paper profits. Some who exercised 
incentive options and owe the tax may have no choice but to plunder 
401(k)s, sell homes, borrow from parents, arrange IRS payment plans and 
consider bankruptcy.
  In this scenario, the AMT is based on paper profits on the day you 
exercise the option and buy stock even if the stock later crashes and 
you lose the profits. It's triggered when you exercise an incentive 
stock option in one year and hold the stock into a later calendar year. 
One thing is clear about stock options: Too many people know too little 
about them. An Oppenheimer Funds survey last year indicated that 75 
percent of stock-option holders weren't familiar with the Alternative 
Minimum Tax, and that 52 percent knew ``little'' or ``nothing at all'' 
about the tax implications of exercising options.
  The time to help these taxpayers is now. The Real AMT Relief Act of 
2001 provides badly needed relief to all taxpayers. Based on the 
recommendations of the IRS National Taxpayer Advocate, the Real AMT 
Relief Act of 2001 completely repeals the individual AMT. Eliminating 
20 percent of the AMT each year until it is completely eliminated in 
2006. This helps lift the burden off both the individual as well as the 
small business taxpayer. We further help to completely protect the 
small business owner by expanding the small business exemption from $5 
million to $10 million.
  I look forward to helping provide this badly needed tax relief to 
America's growing middle class. It is truly an honor to be joined in 
this effort with the distinguished Chairman of the Senate Small 
Business Committee, Senator Bond. His knowledge and passion for this 
issue is second to none. I urge my colleagues to support passage of the 
Real AMT Relief Act of 2001.
  I ask unanimous consent that the text of the bill be printed in the 
Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                 S. 616

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Real AMT Relief Act of 
     2001''.

      SEC. 2. ALTERNATIVE MINIMUM TAX.

       (a) Repeal of Alternative Minimum Tax on Individuals.--
       (1) In general.--Section 55(a) of the Internal Revenue Code 
     of 1986 (relating to alternative minimum tax imposed) is 
     amended by adding at the end the following new flush 
     sentence:

     ``For purposes of this title, the tentative minimum tax on 
     any taxpayer other than a corporation for any taxable year 
     beginning after December 31, 2004, shall be zero.''.
       (2) Reduction of tax on individuals prior to repeal.--
     Section 55 of such Code (relating to alternative minimum tax 
     imposed) is amended by adding at the end the following new 
     subsection:
       ``(f) Phaseout of Tax on Individuals.--
       ``(1) In general.--The tax imposed by this section on a 
     taxpayer other than a corporation for any taxable year 
     beginning after December 31, 2000, and before January 1, 
     2005, shall be the applicable percentage of the tax which 
     would be imposed but for this subsection.
       ``(2) Applicable percentage.--For purposes of paragraph 
     (1), the applicable percentage shall be determined in 
     accordance with the following table:


[[Page S2900]]


    ``For taxable years                                  The applicable
      beginning                                         percentage is--
      in calendar year--
      2001..........................................................80 
      2002..........................................................60 
      2003..........................................................40 
      2004......................................................20.''. 

       (3) Nonrefundable personal credits fully allowed against 
     regular tax liability.--
       (A) In general.--Section 26(a) of such Code (relating to 
     limitation based on amount of tax) is amended to read as 
     follows:
       ``(a) Limitation Based on Amount of Tax.--The aggregate 
     amount of credits allowed by this subpart for the taxable 
     year shall not exceed the taxpayer's regular tax liability 
     for the taxable year.''.
       (B) Child credit.--Section 24(d) is amended by striking 
     paragraph (2) and by redesignating paragraph (3) as paragraph 
     (2).
       (4) Effective date.--The amendments made by this subsection 
     shall apply to taxable years beginning after December 31, 
     2000.
       (b) Income Averaging Not To Increase Alternative Minimum 
     Tax Liability.--
       (1) In general.--Section 55(c) of the Internal Revenue Code 
     of 1986 (relating to regular tax) is amended by redesignating 
     paragraph (2) as paragraph (3) and by inserting after 
     paragraph (1) the following:
       ``(2) Coordination with income averaging for farmers.--
     Solely for purposes of this section, section 1301 (relating 
     to averaging of farm income) shall not apply in computing the 
     regular tax.''.
       (2) Effective date.--The amendment made by this subsection 
     shall apply to taxable years beginning after December 31, 
     2000.
       (c) Expansion of the Exemption From the Alternative Minimum 
     Tax for Small Corporations.--
       (1) In general.--Section 55(e)(1)(A) of the Internal 
     Revenue Code of 1986 (relating to exemption for small 
     corporations) is amended to read as follows:
       ``(A) $10,000,000 gross receipts test.--The tentative 
     minimum tax of a corporation shall be zero for any taxable 
     year if the corporation's average annual gross receipts for 
     all 3-taxable-year periods ending before such taxable year 
     does not exceed $10,000,000. For purposes of the preceding 
     sentence, only taxable years beginning after December 31, 
     1997, shall be taken into account.''.
       (2) Gross receipts test for first 3-year period.--Section 
     55(e)(1)(B) of such Code (relating to exemption for small 
     corporations) is amended to read as follows:
       ``(B) $7,500,000 gross receipts test for first 3-year 
     period.--Subparagraph (A) shall be applied by substituting 
     `$7,500,000' for `$10,000,000' for the first 3-taxable-year 
     period (or portion thereof) of the corporation which is taken 
     into account under subparagraph (A).''.
       (3) Effective date.--The amendments made by this subsection 
     shall apply to taxable years beginning after December 31, 
     2000.

  Mr. BOND. Mr. President, I rise today to join my colleague from 
Arkansas, Senator Hutchinson, in introducing the Real AMT Relief Act of 
2001. This bill focuses on an issue of growing concern to many 
individual taxpayers and especially small business owners, the 
Alternative Minimum Tax, AMT.
  The Real AMT Relief Act addresses the increasingly onerous 
consequences of the individual AMT as well as the corporate AMT. 
According to the Joint Tax Committee, in 1998, the most recent taxpayer 
data available, there were 853,000 individual tax returns that paid 
AMT. That number constituted 0.7 percent of all individual income tax 
returns--a relatively small number of returns. In contrast, the Joint 
Tax Committee estimates that by 2011, 11.2 percent of individual income 
tax returns will have AMT liability, that's more than 16 million 
taxpayers who will have to grapple with this burdensome tax.
  Sadly, many of these AMT taxpayers will be individuals in the middle 
income brackets and not because they are taking advantage of special 
tax loopholes to avoid paying their share of taxes. No, these 
hardworking men and women will be hit with the AMT because they are 
taking advantage of the tax benefits that Congress accorded them, such 
as the child tax credit, the adoption tax credit, the dependent care 
tax credit, and the HOPE Scholarship and Lifetime Learning tax credit, 
to name a few. So instead of receiving a few extra dollars to help 
raise their children, these taxpayers lose much of these benefits and 
get to deal with the complex AMT rules as a bonus prize.
  For other taxpayers, the AMT will not increase their tax bill. But 
because the AMT is a separate tax system, they will have to calculate 
their taxes twice, once under the regular rules and a second time under 
the AMT, just to make sure they do not owe additional taxes. With an 
already complicated set of tax rules for the regular tax, the last 
thing these individuals need is a second set of calculations.
  Another significant group of taxpayers who have largely been 
forgotten in the AMT debate are the small business owners. According to 
recent IRS estimates, there were more than 20.7 million tax returns 
filed by sole-proprietorships, partnerships, and S corporations with 
receipts of less than $1 million. In contrast, there were 2.75 million 
C corporations. As a result, a whopping 88 percent of these businesses, 
with receipts under $1 million, are pass-through entities, businesses 
that are taxed only at the individual owner level.
  For these sole proprietors, partners, and S corporation shareholders, 
the individual AMT increases their tax liability by, among other 
things, reducing depreciation and depletion deductions, limiting net 
operating loss treatment, eliminating the deductibility of State and 
local taxes, and curtailing the expensing of research and 
experimentation costs. In addition, because of its complexity, this tax 
forces small business owners to waste precious funds on tax 
professionals to determine whether the AMT even applies. Just think of 
the economic growth and new jobs that could be created if we could 
eliminate the compliance costs of the individual AMT.

  The Real AMT Relief Act does just that. Based on the recommendation 
of the IRS National Taxpayer Advocate in his 2001 Report to Congress, 
the bill provides for the complete repeal of the individual AMT. This 
will be accomplished by eliminating 20 percent of the AMT each year 
until it is completely repealed in 2006. That's welcome relief for 
individual taxpayers and an enormous burden lifted off the shoulders of 
America's small businesses.
  For small corporations, the AMT story is much the same, high 
compliance costs and additional taxes draining away scarce capital from 
their businesses. In fact, the Committee on Small Business, which I 
chair, received testimony at a hearing in the last Congress that the 
corporate AMT resulted in a $95,000 tax bill for one small business in 
Kansas City, all because the company purchased life insurance on the 
father, who was the primary owner of the business, to prevent the 
estate tax from closing the company down. That type of nonsense must 
come to an end here and now.
  In 1997, Congress established an exemption from the corporate AMT for 
small businesses that are organized as taxable corporations if they 
meet certain gross receipt tests. Under that exemption, a corporation 
initially qualifies if its average gross receipts were $5 million or 
less during its first three taxable years beginning after December 31, 
1993. Thereafter, a small corporation can continue to qualify for the 
AMT exemption for so long as its average gross receipts for the prior 
three-year period do not exceed $7.5 million.
  With the growth and success of small corporations, it is time to 
expand that exemption and continue to provide these small enterprises 
with relief from the corporate AMT. Accordingly, for small corporate 
taxpayers, the Real AMT Relief Act increases the current exemption from 
the corporate AMT. As a result, a small corporation will initially 
qualify for the exemption if its average gross receipts are $7.5 
million or less during its first three taxable years. In subsequent 
years, a small corporation will continue to qualify for as long as its 
average gross receipts for the prior 3-year period do not exceed $10 
million.
  Mr. President, small businesses represent more than 99 percent of all 
employers, employ 53 percent of the private work force, and create 
about 75 percent of the new jobs in this country. In addition, these 
small firms contribute 57 percent of all sales in this country, and 
they are responsible for 51 percent of the private gross domestic 
product. With that kind of performance, small businesses deserve tax 
relief and simplification. The Real AMT Relief Act comes through on 
both accounts. I applaud Senator Hutchinson for his leadership on this 
issue, and I am proud to be the chief co-sponsor of this important 
legislation.
                                 ______