[Congressional Record Volume 147, Number 56 (Monday, April 30, 2001)]
[Senate]
[Page S4048]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. JEFFORDS (for himself, Mr. Conrad, Mr. Murkowski, Mr. 
        Hatch, and Mr. Breaux):
  S. 801. A bill to amend the Internal Revenue Code of 1986 to repeal 
the limitation on the use of foreign tax credits under the alternative 
minimum tax; to the Committee on Finance.
  Mr. JEFFORDS. Mr. President, today I am joining with four of my 
colleagues on the Finance Committee, Senators Conrad, Murkowski, Hatch 
and Breaux, to introduce a bill that will eliminate an aspect of our 
tax laws that is fundamentally unfair to taxpayers with income from 
foreign sources.
  Under our system of taxation, United States citizens and domestic 
corporations are subject to tax on income they earn from sources 
outside the United States. In all likelihood, foreign-source income 
will also be subject to tax by the country where it was earned. Absent 
an Internal Revenue Code measure providing for other treatment, the 
same income could be taxed twice, by two different countries. The tax 
code does have a provision to address this problem of double taxation: 
the foreign tax credit. This credit allows taxpayers to offset 
otherwise payable U.S. taxes with foreign taxes paid on the same 
foreign-source income. Like the other provisions governing 
international taxation, the details of the foreign tax credit are 
complex. The basic principle underlying the credit, however, is simple: 
relief from double taxation.
  The alternative minimum tax, AMT, requires taxpayers to compute their 
taxes twice, once under the ``regular'' method, and once using the AMT 
calculation. As a rule, taxpayers pay the larger of these two 
computations. When taxpayers become subject to the AMT, th protection 
against double taxation is undermined. In the ``regular'' tax 
computation, foreign tax credits protect against double taxation. This 
protection is only partial under AMT rules, however, where the 
allowable foreign tax credit is limited to 90 percent of a taxpayer's 
AMT liability. This limitation means that income subject to foreign tax 
is also subject to U.S. tax.
  There is no sound policy reason for denying relief from double 
taxation under the AMT. When first enacted, the AMT was designed to 
ensure that taxpayers claiming various tax ``preferences'' allowed by 
the Internal Revenue Code should pay a minimum amount of tax. The 
foreign tax credit is not a ``preference'' serving an incentive for a 
particular activity or behavior. Rather, it merely reflects the 
fundamental principle that income should not be subject to multiple 
taxation. The 90 percent limitation was enacted as part of the 1986 tax 
reform bill, solely for the purpose of raising revenue. The bill that 
we're introducing today will eliminate the AMT's 90 percent limitation 
on foreign tax credits. Elimination of this limitation will mean that 
taxpayers subject to the AMT will get the same protection against 
double taxation allowed to taxpayers subject to the regular tax.
  Repeal of the limit on foreign tax credits is not a revolutionary 
idea. In fact, Congress repealed the limitation in the Taxpayer Refund 
and Relief Act of 1999, which was subsequently vetoed. Legislation 
similar to the bill I'm introducing today has also been introduced in 
the House of Representatives. At this point in time, it is questionable 
whether the AMT still serves a valid purpose. In fact, in a study 
released last week, the Joint Committee on Taxation concluded that both 
the corporate and individual AMT should be repealed. In any event, the 
AMT's treatment of foreign tax credits serves no valid purpose. The 90 
percent limitation on foreign tax credits is probably the most unfair 
aspect of the corporate AMT. Even those unwilling to support wholesale 
AMT repeal should support elimination of this most unfair aspect of the 
AMT. In the age of globalization, the AMT limitation on foreign tax 
credits can put U.S. corporations at a competitive disadvantage with 
their foreign rivals. The time has come to repeal this unfair tax 
provision.
                                 ______