[Congressional Record Volume 153, Number 35 (Thursday, March 1, 2007)]
[Senate]
[Pages S2500-S2501]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. SPECTER:
  S. 734. A bill to amend the Internal Revenue Code of 1986 to reduce 
the rate of the tentative minimum tax for noncorporate taxpayers to 24 
percent; to the Committee on Finance.
  Mr. SPECTER. Mr. President, I have sought recognition to introduce 
legislation to provide relief to the rising number of taxpayers 
impacted by the Alternative Minimum Tax (AMT). Between a lack of 
indexing for inflation and higher AMT tax rates relative to the regular 
income tax system, we now have a tax system which has grown far beyond 
its intended result. Important changes must be made to address these 
two critical issues. Absent legislative action, the number of taxpayers 
subject to AMT liability will continue to rise sharply. The AMT Rate 
Reduction Act of 2007 would bring the AMT back ``in line'' with the 
regular individual income tax by reducing its rate back to 24 percent. 
Combined with the continued extension of the AMT exemption, this 
proposal would remove millions of unintended middle-class taxpayers 
from the AMT rolls.
  The AMT functions as a parallel tax system to the regular income tax 
so that when a taxpayer's AMT liability exceeds their regular income 
tax liability, that person must pay the AMT. The AMT is set up to 
ensure that high-income taxpayers pay their fair share by denying 
certain deductions and exemptions available under the regular income 
tax. However, the AMT is now hitting the middle class--and hitting them 
hard.
  It is important to keep in mind that the first version of the AMT was 
created in 1969 in response to a small number of high-income 
individuals who had paid little or no federal income taxes. In 2006, 
3.5 million taxpayers will be subject to the AMT, and that number will 
continue to increase sharply in the coming decade. In Pennsylvania 
alone, 79,000 individuals filed their returns under the AMT in 2003, 
accounting for 1.37 percet of all Pennsylvania returns; 114,000 
Pennsylvania returns were filed under the AMT in 2004, accounting for 
1.97 percent of all Pennsylvania returns; and 137,486 Pennsylvania 
returns were filed under the AMT in 2005.
  This onerous tax is slapped on average American families largely 
because the AMT is not indexed for inflation, while the regular income 
tax is indexed, and taxpayers are ``pushed'' into the AMT through so-
called ``bracket creep.'' Temporary increases in the AMT exemption 
amounts expired at the end of 2006. The Economic Growth and Tax Relief 
Reconciliation Act of 2001 increased the AMT exemption amount effective 
for tax years between 2001 and 2004; the Working Families Tax Relief 
Act of 2004 extended the previous increase in the AMT exemption amounts 
through 2005; and the Tax Increase Prevention and Reconciliation Act of 
2005 increased the AMT exemption amount for 2006. If we do not again 
adjust the AMT exemption amount, it is estimated that the number of 
taxpayers subject to the AMT will jump from 3.5 million in 2006 to 23 
million in 2007, with middle-income taxpayers most affected. In 
Pennsylvania alone, that number will jump drastically to 837,000 in 
2007. According to the Congressional Research Service, taxpayers

[[Page S2501]]

filing joint returns with no dependents will be subject to the AMT 
starting at income levels of $75,386. Large families will be subject to 
the AMT at income levels as low as $49,438.
  In addition to the issue of indexing the AMT exemption amount for 
inflation, the AMT tax rate relative to the regular income tax must 
also be addressed to keep additional taxpayers who were never intended 
to pay the AMT from being subject to its burdensome grasp. In 1993, 
President Clinton and a Democrat-controlled Congress imposed a 
significant tax hike on Americans through the regular income tax. At 
the same time, the AMT tax rate was also increased from 24 percent to 
26 percent for taxable income under $175,000 and from 24 percent to 28 
percent for taxable income that exceeds $175,000. In theory, these 
simultaneous changes had the effect of keeping roughly the same number 
of individuals paying their taxes under the AMT. However, when 
President Bush's tax cuts were enacted in 2001 and 2003, Congress did 
not again adjust the AMT tax rates. Ironically, by reducing regular 
income tax liabilities without substantially changing the AMT, many new 
taxpayers were pushed into these higher AMT tax rates created in 1993.
  According to an editorial in the Wall Street Journal (WSJ) on 
February 23, 2007, entitled ``Bill Clinton's AMT Bomb,'' the number of 
filers paying the AMT increased from 300,000 to nearly 2 million 
between 1992 and 2002. The WSJ also cites a Joint Committee on Taxation 
(JCT) analysis from April 2006 which shows that about 11 million more 
Americans will have to pay the AMT next year as a result of the 1993 
AMT rate increase. It concludes that ``going back to the pre-Clinton 
rates would leave only about 2.6 million tax filers subject to an AMT 
penalty next year instead of 23 million under current law.''
  The most unfortunate aspect of adjusting the AMT is the associated 
cost. According to the April 2006 JCT analysis, the ten-year cost of my 
proposal, combined with extension of the AMT exemption amount, is a 
staggering $632.7 billion. However, it is still substantially less than 
the cost of full repeal. According to the Congressional Research 
Service, it is estimated that repealing the AMT would cost, depending 
on whether the recent reductions in the regular income tax are extended 
beyond 2010, $806 billion to over $1.4 trillion from 2007 through 2016.
  I am cognizant of the fact that Democrats in the 110th Congress will 
seek to fully offset the cost of the lost revenue resulting from any 
adjustment to the AMT. With the political realities being as such, I am 
willing to work with my colleagues to identify reasonable offsets, if 
they are necessary, to garner broad support for this effort. However, 
it is questionable whether an offset should be needed to recover 
``lost'' revenue that was never intended to be collected in the first 
place.
  I look forward to working with my colleagues to both simplify our tax 
code and to identify the best avenue for keeping unintended taxpayers 
from falling prey to the AMT. I will continue to support the so-called 
``hold-harmless patch.'' By both extending and increasing the AMT 
exemption amount to keep up with inflation, the ``patch'' ensures that 
no additional taxpayers on the lower end of the income spectrum become 
liable for the AMT. However, I urge my colleagues to support my 
legislation which would remove millions of additional unintended 
taxpayers who are currently subject the AMT.
  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. 734

       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 ``AMT Rate Reduction Act of 
     2007''.

     SEC. 2. REDUCTION IN RATE OF TENTATIVE MINIMUM TAX FOR 
                   NONCORPORATE TAXPAYERS.

       (a) In General.--Clause (i) of section 55(b)(1)(A) of the 
     Internal Revenue Code of 1986 (relating to noncorporate 
     taxpayers) is amended to read as follows:
       ``(i) In general.--In the case of a taxpayer other than a 
     corporation, the tentative minimum tax for the taxable year 
     is--
       ``(I) 24 percent of the taxable excess, reduced by
       ``(II) the alternative minimum tax foreign tax credit for 
     the taxable year.''.
       (b) Conforming Amendment.--Subparagraph (A) of section 
     55(b)(1) of such Code is amended by striking clause (iii).
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after the date of the 
     enactment of this Act.
                                 ______