[Congressional Record Volume 149, Number 64 (Thursday, May 1, 2003)]
[Extensions of Remarks]
[Page E851]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


             THE INDIVIDUAL TAX SIMPLIFICATION ACT OF 2003

                                 ______
                                 

                          HON. RICHARD E. NEAL

                            of massachusetts

                    in the house of representatives

                         Thursday, May 1, 2003

  Mr. NEAL. Mr. Speaker, today I am introducing ``The Individual Tax 
Simplification Act of 2003,'' and I invite all my colleagues to join me 
in sponsoring this legislation, which is identical to legislation I 
filed last Congress.
  The tax code seems to get more and more complex each year, despite 
calls for simplification. Recently, the Joint Tax Committee determined 
that taxpayers are increasingly relying on paid return preparers, up 27 
percent over a decade. Over the same period, the reliance on computer 
software has jumped from 16 percent of returns filed to 46 percent. Tax 
code complexity leads not only to taxpayer frustration and confusion, 
but also increased costs. Tax code complexity also leads to 
difficulties for the IRS in administering our tax laws fairly and 
consistently.
  The simplification bill that I have re-introduced will eliminate 
hundreds of lines from tax forms, schedules and worksheets. I believe 
that it is possible and preferable to accomplish simplification in a 
revenue neutral manner, and without moving money between economic 
income groups. While some may argue that there is no constituency for 
simplification, I would say that is certainly changing. One survey 
found that two-thirds of taxpayers said the federal tax system is too 
complicated, up from barely 50 percent five years ago.
  The Individual Tax Simplification Act has three parts. The first is 
based on legislation I introduced in the last three Congresses 
regarding nonrefundable personal credits. The second part simplifies 
the taxation of capital gains. The third part repeals two hidden 
marginal tax rates on high-income individuals, and repeals the 
individual minimum tax.
     Title I--Simplification Relating to Nonrefundable Personal 
         Credits
  In recent years, much tax relief has been given to taxpayers in the 
form of nonrefundable credits, like the education credits. These 
credits are not usable against the alternative minimum tax. That means 
that more and more individuals will lose all or part of these credits, 
and will have to fill out the extremely complicated Alternative Minimum 
Tax (AMT) form. Congress has recognized this problem by enacting a 
short-term waiver of this exclusion. Congress has also permanently 
taken the child credit and the adoption credit out of the AMT. Now is 
the time to finish the job.
  The other problem with nonrefundable credits is that the phase-out 
provisions vary from credit to credit, causing unnecessary complexity. 
In addition, the same additional dollar of income can result in a 
reduction in more than one nonrefundable credit. It is fundamentally 
wrong to promise the American public tax relief, then take all or part 
of it away in a backhanded manner. This fundamentally flawed policy, 
enacted in 1997, will get worse each and every year as more American 
families find themselves to be AMT taxpayers simply because of the 
impact of inflation, or because of their desire to take advantage of 
the tax relief we have promised them. Not only that, this situation has 
gotten much worse since the passage of the 2001 tax cuts.

  This bill addresses both concerns. First, it permanently waives the 
minimum tax limitations on all nonrefundable credits. Second, the bill 
creates a single phase-out range for the adoption credit, the child 
credit, and the education credits, replacing the current three phase-
out ranges.
     Title II--Simplification of Capital Gains Tax
  The second title of this bill substantially simplifies taxation of 
capital gains. Under current law, there are five different tax rates 
for long-term capital gains, and a complicated, 40-line tax form that 
must be endured. Moreover, this part of the tax code is already 
scheduled to get worse because additional rates will take affect under 
current law in 2006. The solution is clear. Replace this jumble of 
rates and forms with a simple 38 percent exclusion. Not only will this 
result in tremendous simplification, but more than 97 percent of 
individuals would be eligible for modest capital gains tax reductions.
     Title III--Repeal of Certain Hidden Marginal Rate Increases, 
         and of the Individual Minimum Tax
  The third title of the bill repeals the hidden marginal rate 
increases in current law, and repeals the individual minimum tax. For 
many taxpayers, discovery of the Personal Exemptions Phaseout (PEP) and 
the ``Pease,'' which limits itemized deductions, can be both confusing 
and disappointing.
  Under current law, itemized deductions are gradually reduced by 3 
percent of adjusted gross income (AGI) above approximately $139,000, or 
by 80 percent of the otherwise allowable itemized deductions for 
individuals exceeding $139,000 AGI, whichever is lower. This is known 
as the Pease provision. In addition, personal exemptions are gradually 
phased out for incomes between approximately $139,000 and $262,000. 
This is known as the PEP. If we did not hide the effect of these 
provisions of current law, more people would know that these provisions 
result in hidden marginal rate increases. Current law has a hidden 
marginal rate increase, which gets worse as families grow larger. The 
2001 tax cuts as enacted provide for gradual phase-out of both of these 
limitations in 2006, but then the repeal is subject to a sunset. This 
bill would immediately eliminate both.
  The second part of this title is a complete repeal of the individual 
AMT. The original intent of the AMT was to make sure that wealthy 
individuals did not overuse certain tax benefits and unfairly reduce 
their tax burden. Unfortunately, it no longer accomplishes that goal. 
Since the AMT is not adjusted for inflation, more and more middle 
income taxpayers are falling into the AMT. In fact, a recent Tax Policy 
Center report showed that by the end of the decade, the AMT will hit 97 
percent of all families with two children earning between $75,000 and 
$100,000. This is not what was intended, especially when you consider 
that what pushes taxpayers into the AMT now, more often than not, are 
state and local income and property taxes, personal exemptions, and the 
nonrefundable credits. The National Taxpayer Advocate has called for 
the repeal of the AMT, finding that the AMT calculation adds another 12 
hours of preparation time for a taxpayer. Certainly, this is not what 
Congress was trying to accomplish when the AMT was passed.
  My suggestion is to repeal it for individuals, and substitute a 
simple tax on adjusted gross income. The current hidden tax is dropped, 
and is paid for with an explicit tax on the same individuals. They get 
simplification, and we convert a deceptive practice into an open one.
  This bill gives the Secretary of the Treasury the ability to set the 
rate so that this bill would be revenue neutral over ten years. The 
threshold amount, chosen to mimic the reality of current law, would be 
$120,000, and $150,000 in the cases of a joint return.
     Conclusion
  This bill provides fairly dramatic simplification of the individual 
tax system. It eliminates up to 200 lines on tax forms, schedules and 
worksheets. It is basically revenue neutral, so it can be accomplished 
during a year when there is no budget surplus to fund tax cuts. It does 
not attempt to shift money between income groups. The general 
philosophy behind the bill is that those who benefit from tax 
simplification of the current code should offset any revenue loss 
involved.
  With only one-third of individuals actually willing to fill out their 
own forms, it is time for Congress to act. Unfortunately, the reality 
is that no one wants to pay for simplification no matter how much they 
support the goal. Here is my suggestion. I am introducing this 
legislation to continue the discussion I began during the 106th 
Congress. I am pleased that this Administration has talked about the 
need for tax simplification. I am also pleased that since I began this 
effort, the Joint Committee on Taxation and other Members of Congress 
have joined the debate. I look forward to working with all interested 
parties in this simplification effort.

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