[Congressional Record Volume 150, Number 45 (Friday, April 2, 2004)]
[Extensions of Remarks]
[Page E524]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




     MINIMUM TAX AND PRIVATE ACTIVITY BONDS INTRODUCTORY STATEMENT

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                          HON. RICHARD E. NEAL

                            of massachusetts

                    in the house of representatives

                         Friday, April 2, 2004

  Mr. NEAL of Massachusetts. Mr. Speaker, I first introduced 
legislation to repeal the individual alternative minimum tax on April 
14, 1999, and have been warning about the dangers of letting this 
problem fester ever since. While the broad problem has since become 
better known (albeit not addressed in any meaningful way), little 
attention has been paid to the plethora of nagging problems caused by 
the neglect of the Bush Administration of this issue--problems I have 
addressed one at a time in additional legislation over the years.
  The latest example of the cost of this Administration's neglect is 
the impact the alternative minimum tax is having, and will have, on 
private activity bonds; as discussed in an insightful analysis by John 
Buckley (Minority Chief Tax Counsel, Committee on Ways and Means) 
published in BNA's The Daily Tax Report March 1st. As a leader, along 
with Rep. Amo Houghton, in expanding the use of private activity bonds 
for low and moderate income housing, I am particularly sensitive to the 
adverse affect the AMT is having on the market for housing bonds.
  The failure of the Bush Administration to address the issue of the 
AMT meaningfully means that the number of families subject to the 
minimum tax is skyrocketing. Without further action by Congress, 78.6 
percent of families with incomes between $75,000 and $100,000, and 95 
percent of all families with incomes between $100,000 and $500,000, 
will pay the minimum tax in the future. While the impact of the 
alternative minimum tax has become widely known, few recognize its 
impact on private activity bonds. Approximately 75 percent of all tax-
exempt bonds are held directly or indirectly by individual investors. 
These investors generally have annual incomes that in the future will, 
as indicated above, almost guarantee that they will pay the alternative 
minimum tax. As a result, the individual market for tax-exempt private 
activity bonds is quickly eroding and could disappear entirely in the 
future.
  Already the financial markets have begun to recognize this serious 
problem. Not only have some mutual funds reportedly announced their 
intention of not investing in bonds subject to the AMT, but higher 
interest rates are being offered in connection with these bonds. In 
2000, private activity bonds were issued at average interest rates of 
about 104 percent of the rate offered on tax-exempt general obligation 
bonds, presumably reflecting slightly greater risk. In 2003, the 
average interest rate had increased on tax-exempt bonds to about 110 
percent of the rate offered on tax-exempt general obligation bonds.

  Some will argue that this is a problem that can wait for another day 
since the number of individuals subject to the minimum tax will explode 
only in the future. They are wrong. Tax-exempt bonds quite often are 
issued for terms as long as 30 years. The fact that an exemption may 
have value today but not in five years, will affect the interest rate 
at which those obligations are currently being issued.
  Mr. Speaker, this country is now being forced to face the 
consequences of the Bush tax cut agenda. The deficit has exploded while 
the Administration swats at flies in non-defense discretionary 
spending, the value of our currency is declining as investors both here 
and abroad lose faith in our fiscal policies, and the International 
Monetary Fund recently criticized the fiscal policies of the Bush 
Administration in terms that previously had been used only in the 
context of developing nations. We are again seeing growing income 
inequalities as the wages paid to average workers stagnate and jobs 
flee the country.
  These are some of the economic issues that divide the two parties in 
Congress, and we can and will vigorously debate them in the future. 
However, I believe that we should attempt to take action on a 
bipartisan basis to limit the adverse and unintended impacts of the 
alternative minimum tax. The bill I am introducing today, along with my 
colleague from New York Steve Israel, simply removes tax-exempt 
interest on private activity bonds from the individual alternative 
minimum tax. While failure to act would mean that Congress does not 
place as much emphasis on providing decent housing for the less 
fortunate as it seems to, I am confident that that is not the case. 
However, I am worried that this problem, as other problems involving 
the minimum tax, will simply be band aided over until that mythical 
time in the future when we tackle the AMT problem as a whole.

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