[Congressional Record Volume 153, Number 29 (Thursday, February 15, 2007)]
[Senate]
[Pages S2008-S2011]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                        ALTERNATIVE MINIMUM TAX

  Mr. GRASSLEY. Madam President, you and other Senators have seen me on 
the floor in the last few days in order to bring some clarity to our 
discussion we have every year about what to do with the alternative 
minimum tax. When I say ``every year,'' for at least the last 3 years 
we have had some discussion about the alternative minimum tax. I would 
remind people that in 1999 we passed a repeal of the alternative 
minimum tax, but President Clinton vetoed it and we haven't been able 
to repeal it since.
  Now, this alternative minimum tax was originally created in 1969 
targeting wealthy taxpayers who were able to legally eliminate their 
entire income tax liabilities. The AMT has turned into a monster that 
has threatened to hurt the middle class and maybe eventually touch 
lower income taxpayers if we don't do something about it. Obviously, if 
it is a monster, that ought to indicate to my colleagues that I think 
it ought to be repealed.
  The reason for this, as I have explained, is the failure a long time 
ago to index the alternative minimum tax for inflation. Thirty-eight 
years of inflation has allowed the alternative minimum tax to spread to 
literally millions of taxpayers who were never intended to pay it in 
the first place. Although more middle and lower income taxpayers will 
be hit by the alternative minimum tax, it has not decreased the 
percentage of high-income taxpayers who have no tax liability. So here 
we have the anomaly of a tax that was supposed to hit just the very 
wealthy.
  In the year 1969, we were talking about a study which showed 155 
people. Now it is hitting millions of people. This year, if we don't 
act, it is going to hit another 9 million or 10 million. And the 
anomaly is, there are people who have figured a way to even not pay the 
alternative minimum tax, and those people obviously are the wealthy 
whom it was supposed to hit in the first place.
  The alternative minimum tax also takes more than the taxpayers' 
money; it takes an awful lot of time to figure through this when you 
are doing your taxes. I think it was on Tuesday of this week or Monday 
of this week when I said the IRS estimates that the taxpayers spend an 
average of 63 hours computing the alternative minimum tax liability. 
The alternative minimum tax is truly a very cruel way of raising 
revenue. While there seems to be general agreement that the AMT is a 
problem, there has been less agreement on the solution for that 
problem. Perhaps I shouldn't be surprised that there are more problems 
than there are solutions, but I am surprised by some of the obstacles 
preventing a solution to the alternative minimum tax.
  There are some who make the argument that any revenue not collected 
in the future as a result of the alternative minimum tax repeal, or 
reform, ought to be offset. I explained this before, but you can't say 
it too many times around here: The alternative minimum tax is a phony 
revenue source and should not be offset. Since the alternative minimum 
tax collects revenues, it was never intended to collect from people who 
were never intended to pay it in the first place.
  Although the alternative minimum tax is still with us, it is not 
because solutions have not been considered and proposed. Right now I 
will walk through some of those solutions that have been suggested. 
Before I begin, I wish to emphasize a point I made a couple days ago. 
With surprising regularity over the past 38 years, Congress has been 
meddling with the AMT, including the year I said we passed legislation 
to repeal it and President Clinton vetoed it. Since 1969, more than 20 
bills have made changes to the alternative minimum tax. Sometimes the 
rate was adjusted. Sometimes the exemption amounts were modified. More 
than once, graduated rates were introduced. My point is that for 38 
years, Congress has hoped to tinker with the alternative minimum tax in 
just the right, very right way, very perfect way, to finally get it 
right but not succeeded. Unless we truly believe we are the smartest 
Congress in 38 years, anything short of complete repeal of the AMT will 
probably require yet further action down the road in a few years.
  I would also like to draw attention to the revenue estimates done by 
the Joint Committee on Taxation in 2005 that is reproduced on this 
chart, and these numbers are so small I am only going to talk around 
them and not specifically to those numbers. I ask unanimous consent 
that this estimate be printed in the Record.

                                            COMMITTEE ON FINANCE--ESTIMATED REVENUE EFFECTS OF VARIOUS INDIVIDUAL AMT OPTIONS--FISCAL YEARS 2006-2015
                                                                                      [Billions of dollars]
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
              Provision                      Effective           2006       2007       2008       2OO9       2010       2011       2012       2013       2014       2015     2006-10    2006-15
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1. Fully repeal the AMT..............  tyba 12/31/05........      -23.4      -61.2      -71.1      -83.9      -97.4      -79.3      -38.3      -44.4      -51.9      -60.1     -337.0     -611.0
2. Allow certain preference items in
 the calculation of AMT:
    a. Personal exemption............  tyba 12/31/05........      -11.2      -30.3      -37.0      -44.9      -53.0      -43.8      -23.1      -27.6      -33.2      -39.1     -176.4     -343.2
    b. Standard deduction............  tyba 12/31/05........       -1.8       -5.1       -6.8       -8.8      -10.8       -8.6       -3.9       -4.8       -5.9       -7.2      -33.3      -63.7
    c. State and local taxes.........  tyba 12/31/05........      -16.1      -42.4      -49.1      -56.5      -63.5      -51.9      -28.6      -32.9      -38.1      -43.7     -227.6     -422.8

[[Page S2009]]

 
3. Permanent extension of present-law  tyba 12/31/05........      -11.8      -31.7      -37.4      -43.7      -50.2      -41.0      -23.1      -27.2      -32.1      -37.2     -174.8     -335.4
 exemption amounts.
4. Permanent extension of the          tyba 12/31/05........       -0.6       -2.9       -3.2       -3.5       -3.9       -4.7       -6.7       -7.4       -8.3       -9.0      -14.1      -50.2
 treatment of nonrefundable credits
 under the AMT.
5. Extend and index the present-law    tyba 12/31/05........      -12.5      -33.9      -41.5      -50.4      -59.9      -49.7      -27.4      -32.9      -39.7      -47.2     -198.2     -395.1
 exemption amount and lower bracket
 endpoint.
6. Provide an exemption from the AMT
 system for taxpayers with adjusted
 gross income less than:
    a. $50,000.......................  tyba 12/31/05........       -0.2       -0.5       -0.6       -0.7       -0.8       -0.8       -0.8       -0.9       -1.0       -1.1       -2.8       -7.4
    b. $100,000......................  tyba 12/31/05........       -3.3       -8.9      -10.6      -12.5      -14.4      -12.6       -9.0      -10.2      -11.5      -13.0      -49.7     -106.0
    c. $150,000......................  tyba 12/31/05........       -7.9      -21.2      -25.1      -29.8      -35.1      -29.1      -16.7      -19.4      -22.8      -28.2     -119.1     -233.3
7. Increase the lower bracket
 endpoint from $175,000 to:
    a. $200,000......................  tyba 12/31/05........       -0.4       -1.0       -1.1       -1.3       -1.5       -1.3       -0.9       -1.1       -1.2       -1.4       -5.3      -11.2
    b. $250,000......................  tyba 12/31/05........       -0.9       -2.3       -2.7       -3.2       -3.7       -3.2       -1.9       -2.3       -2.7       -3.2      -12.8      -26.1
8. Reduce the rates from 26% and 28%   tyba 12/31/05........      -10.8      -28.9      -34.1      -40.0      -45.7      -37.0      -19.7      -23.1      -27.1      -31.4     -159.5    -297.8
 to 24% and 26%.
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Note.--Details may not add to totals due to rounding. Legend for ``Effective'' column: tyba = taxable years beginning after.
Source: Joint Committee on Taxation.

  Mr. GRASSLEY. This is an estimate of how various proposed fixes to 
the alternative minimum tax will impact revenues expected to be 
collected under the current law. What you should note is that full 
repeal aside--which I suggest is about the only way to do it but not 
considering that--each of those proposals will still allow the 
alternative minimum tax to bring hundreds of billions of dollars into 
the Treasury. If you consider any proposal aside from full repeal, you 
are saying that hundreds of thousands, if not millions, of people in 
our country deserve to bear the burden of an alternative minimum tax 
that is not even, in some instances today, taxing to people who are 
supposed to pay the tax: the very wealthy.
  One possible solution is to continue doing what we have been doing 
for the past several years. Ever since 2001, the Finance Committee has 
produced legislation that has kept additional taxpayers from falling 
prey to the alternative minimum tax because of inflation. In the tax 
increase prevention and reconciliation bill of 2005, we were able to 
extend the hold-harmless clause through December 31, just ended. That 
hold harmless now has expired and action will need to be taken this 
very year or the AMT will return to its pre-2001 exemption levels, and 
tens of millions of taxpayers will fall into the AMT and have to pay it 
this year.
  Suppose we are able to continue enacting 1- or 2-year temporary 
patches, as we did last year. First, this strategy assumes that 
Congress will have the time and the inclination to spend time dealing 
with the alternative minimum tax every year or two. This means that 
whatever the issues of the day may be--Iraq, unemployment, natural 
disasters such as Katrina--Congress will have to stop dealing with 
those other problems and periodically return to holding harmless people 
who would be otherwise hit by the alternative minimum tax.
  Is the alternative minimum tax an issue that we, as a legislative 
body, should revisit every year or wouldn't it be better to do away 
with a piece of legislation that was never intended to kill the middle 
class but will? Today I can show you some taxpayers who ought to be 
paying it who have found ways of getting around a provision that no 
wealthy taxpayer was supposed to get around. I hope this body would be 
ashamed to say that to anyone, that we would consider going down that 
road, but there we are.
  The second point I wish to make is Congress attempts to enact or do 
this every year. Every time a patch is considered, there is another 
chance for taxpayers to be subject to a stealth tax increase. Finally, 
we have to remember that more than 3 million taxpayers are currently 
caught by the AMT, and we are putting a chart up here now that will 
show more than 3 million families and individuals paid this tax in 
2004. This is the way it hits every State. In case the Senator who is 
presiding can't see this, in the case of Minnesota, there are 69,000 
people in that State who paid this for the last year we know about, 
2004. In my State of Iowa, if I can find Iowa on here, 17,000, and I 
will bet most of these people in Minnesota or Iowa who are paying it--
you know, in 1969, it was never anticipated that they pay it. But they 
are paying it because that is the way our tax laws work, until you make 
some change in them, and because this wasn't indexed.
  In dealing with the alternative minimum tax, are we going to tell 
these people we know that isn't fair and we would like to help you, but 
in fact you are out there on your own? Well, no taxpayer hearing me say 
that wants to hear that. I hope this body would be ashamed to say to 
anyone, much less more than 3 million families and individuals, that 
any extension of a patch or hold harmless will be fundamentally flawed 
in that it doesn't take people already hit by the AMT into account. If 
we are going to decide to protect people from falling into the clutches 
of the AMT, it would be immoral to forget about those already subject 
to it.
  I wish to add, as someone involved in enacting the recent hold-
harmless provisions, so people preparing their income tax right now, 
there aren't any more of them hit by the alternative minimum tax than 
were hit the previous year, but that is ended December 31. But as one 
who was involved in that, they were never intended to be a permanent 
solution. The patches were always ``kicking the can down the road'' and 
letting somebody else worry about them. Well, I am still here, and I 
have to worry about it, so I am creating problems for myself. But I 
don't know how you can get people tuned in to doing away with a tax, 
and you can't do away with it because you have to offset it, but you 
are offsetting it with a bunch of phantom income that was never 
supposed to be paid by these people in the first place. The public 
listening to this are going to say: Well, what planet did these 
Congressmen come from?
  Well, let's go on to another idea, to limit the reach of the 
alternative minimum tax based on income. We might decide, for instance, 
that anyone who makes less than $125,000 a year will not be subject to 
the alternative minimum tax or maybe we could set it at the amount of 
$200,000 or you could say $400,000. Now, in a nutshell, I have laid out 
a principal difficulty with setting a minimum threshold based on 
income. How do we set a number that would be equitable throughout the 
country? I am not thinking of myself so much as those who come from the 
so-called blue States, their taxpayers. Any Iowan who has spent any 
time in Washington, DC, knows right away that it generally costs more 
to live in those States than in other States, more rural States. It 
costs more to buy a house, to buy food at the grocery store. What I am 
trying to get at is that prices and incomes are relative. Taxpayers 
living in areas such as Manhattan or San Francisco could be especially 
hard hit by the alternative minimum tax by income. In fixing the AMT, I 
don't want to move problems around or reassign hardships. That is akin 
to reassigning the tables and chairs on the deck of the Titanic.
  Another proposal which has been suggested is to allow certain 
preference items in the calculation of the alternative minimum tax. 
This would allow taxpayers to count items, such as a personal 
exemption, the standard deduction, the State and local taxes, against 
their income for the purposes

[[Page S2010]]

of calculating AMT liability. This approach is also fraught with 
difficulty and unnecessary decisions. To implement this proposal, we 
would have to arbitrarily give some taxpayers an escape hatch, while 
others would not be able to escape the AMT.

  If we allow State and local taxes to be a preferenced item, for 
example, we are giving an advantage to people who choose to live in 
high-tax jurisdictions over those who choose to live in low-tax 
jurisdictions. In my way of thinking, it is not fair for the Federal 
Government to give more favorable tax treatment to some taxpayers 
because of where they live. Also, it seems likely that taxpayers who 
pay the most in State and local taxes are going to be wealthy taxpayers 
whom the AMT was supposed to tax in the very first place.
  If we were to give the standard deduction preferential status in 
calculating AMT liability, then I have concerns about the impact this 
might have, for instance, on charitable giving. If we only allow the 
standard deduction to be taken against the AMT, people may decide not 
to make charitable donations they might otherwise consider. On the 
other hand, we could allow individuals to count their total charitable 
contributions when calculating AMT. This approach favors those wealthy 
enough to make large charitable contributions.
  The point I make is allowing taxpayers to consider certain 
preferenced items when calculating their AMT liabilities will make it 
necessary to favor some taxpayers and will lead to more bills making 
more changes in the future to the AMT as various groups or interests 
fight to allow a given exemption or deductibility they favor to be 
taken against the AMT liability.
  These are all items which have been floating around as suggestions to 
fix this problem we have. I don't think any of them are very sound tax 
policy. They might help some people, but they are going to hurt others.
  Before I explain how we can deal with the AMT once and for all--and I 
have already pointed out what I think that is, and that is repeal--I 
wish to explain how various proposals impact the number of taxpayers 
already hit by the AMT as calculated by the nonpartisan Joint Committee 
on Taxation.
  This chart shows numbers from last year. As the blue line on this 
chart shows, under current law, the number of AMT filers will jump by 
over 20 million this year if Congress does nothing.
  The red line shows what would happen if the exception applicable in 
2005 was made permanent and indexed for inflation still at a higher 
level, hitting people who were never intended to be hit, but it would 
still moderate the impact for tens of millions of people. Clearly, the 
number of taxpayers affected is less, but still a very large number 
that, after dropping to a low of 1.7 million people in 2011, begins to 
increase again, to 2.1 million people by the year 2016.
  The orange line represents the establishment of a 24-percent rate 
along with the 2005 exemptions made permanent and indexed for 
inflation. This plan just described--the orange line--follows the trend 
of the red line as it incurs a drop before creeping back up.
  Finally, the green line on the chart shows what would happen if we 
took the 1985 exemption amount, which was $30,000 for individuals and 
$40,000 for joint returns, and indexed it for inflation. As with the 
other three lines, the number of taxpayers affected drops more before 
creeping back up once again.
  Although some of these options seem to assist most taxpayers, do not 
be fooled by the large scale of this chart. Even the option to index by 
1985 exemption leaves at least several hundred thousand taxpayers 
exposed to the AMT. It would be difficult to explain to these people 
why others deserve fair treatment and they do not.
  Clearly, there is only one way, then, to fix the alternative minimum 
tax so that no taxpayer is subject to what has become a complete policy 
failure, because even some wealthy people who were supposed to pay a 
minimum tax for the privilege of living in America are able to get 
around it as well. We must completely repeal the individual alternative 
minimum tax. There is a bipartisan consensus that only complete repeal 
is an adequate solution to this problem. Chairman Baucus, with me and 
with Senator Crapo, Senator Kyl, Senator Roberts, Senator Schumer, and 
Senator Smith, last month introduced the Individual Alternative Minimum 
Tax Repeal Act of 2007. By the way, that is a bipartisan group of 
people.
  The alternative minimum tax was originally conceived as a means to 
ensure that the Tax Code was equitable and more progressive. 
Ironically, the only equitable thing to do is to completely banish the 
individual AMT from the Tax Code. Any other solution will entail we 
treat taxpayers in similar situations differently or that we 
arbitrarily choose winners and losers.
  As I have said many times, the alternative minimum tax has been a 
complete and absolute failure. The alternative minimum tax was only 
supposed to hit a very small number of wealthy taxpayers who were able 
to legally eliminate their entire income tax liability. In reality, the 
AMT is gradually consuming our middle class and is projected to absorb 
more revenue coming in from the alternative minimum tax than the 
regular income tax in just a little while. Furthermore, the alternative 
minimum tax does not even prevent wealthy taxpayers from eliminating 
their tax liabilities. If Members have heard me say that four times, I 
say it to impress that the original intent of the alternative minimum 
tax is not even being met.

  For the tax years 2003, the IRS calculated that there are 2,366 
taxpayers with incomes of over $200,000 a year or more who did not pay 
any income tax. These 2,366 taxpayers did not use medical or dental 
expense deductions to limit their tax liability.
  We must repeal the AMT. We must do it without offsetting any revenue 
the AMT is expected to collect in the next few years because it was 
never intended in 1969 that these people pay the alternative minimum 
tax. I have made this point before but cannot make it too many times: 
The AMT was never intended to be a significant source of revenue. It 
was supposed to be making a point that when some of the very wealthiest 
use every legal means they can--and I stress ``legal'' because these 
are not criminals--every legal means to avoid paying income tax, they 
ought to pay a little bit for the privilege of being in America. Not 
that they don't pay in other ways--it is a matter of progressivity as 
much as it is the privilege of living in America, to be a matter of 
principle. It was never meant to be a significant source of income.
  Despite this, we will see the alternative minimum tax ballooning 
Federal revenues to historically high levels if something is not done. 
This chart which I used a couple of days ago shows how revenues are 
projected to exceed the 30-year historical average. This historical 
average is actually about a 50-year historical average, somewhere 
between 17 percent and 19 percent. We are at the historical average 
right now. Even though we were a little bit below after the income tax 
cut of 2001, we are back up to 18.4 or 18.6 of GNP. If we do not do 
something about this alternative tax and we also continue to collect it 
from people who were never intended to pay it, this is where we end 
up--with income coming into the Federal Treasury way above the 
historical average.
  I emphasize historical average, not that it is sacrosanct, but I come 
to the conclusion that over a period of 50 years, if we have a tax 
policy falling between 17 percent and 19 percent--and this is whether 
there were 93 percent marginal tax rates that President Kennedy did 
away with or as low as 28 percent marginal tax rates that we had in the 
tax year of 1986 under Reagan--if we overlap all of the marginal tax 
rates on top of the GNP portion the Federal Government takes, we still 
average 17 percent to 19 percent, which shows that it does not matter 
how wealthy you are, some people come to the conclusion that they will 
only work so hard and pay so much tax regardless of how high the 
marginal tax rate is, and you get the same amount of money coming in.
  So try to tax the wealthy, raise the marginal tax rate, you get less 
revenue. If you want to soak the rich, lower the marginal tax rate 
because they are people who will take their money out of leisure, they 
will take it out of nonproductive investments such as antique and gold 
and put it into productive investments because probably they are greedy 
and they want to make

[[Page S2011]]

more if it is worth working to make more.
  Regardless of where we set it, 17 percent to 19 percent seems to work 
because, at least in my judgment, a very commonsense judgment, it is a 
level of taxation that there has not been a revolt against. It is a 
level of taxation that 50 years of our country shows has increased the 
standard of living for the American people very dramatically.
  If we consider the AMT to be fundamentally an unfair tax, any tax 
that would replace it would be equally unfair. Anyone who wants equity 
to be a fundamental value represented by our Tax Code or who wants fair 
treatment for this country's taxpayers must support complete repeal of 
the alternative minimum tax and should support the Baucus-Grassley 
bill, which is the Individual Alternative Minimum Tax Repeal Act of 
2007, a bipartisan bill.
  I yield the floor, and I suggest the absence of a quorum.
  The PRESIDING OFFICER (Ms. STABENOW). The clerk will call the roll.
  The assistant legislative clerk proceeded to call the roll.
  Ms. STABENOW. Mr. President, I ask unanimous consent that the order 
for the quorum call be rescinded.
  The PRESIDING OFFICER (Mr. Whitehouse). Without objection, it is so 
ordered.

                          ____________________