[Congressional Record Volume 153, Number 139 (Wednesday, September 19, 2007)]
[Senate]
[Pages S11739-S11742]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                        ALTERNATIVE MINIMUM TAX

  Mr. GRASSLEY. Madam President, I am here to follow through on a 
promise I made back on June 13. At that time, after several speeches on 
the alternative minimum tax, I said I was going to continue talking 
about the alternative minimum tax until Congress took action to protect 
the roughly 19 million families and individuals who will be hit by it 
in 2007 who did not have to pay it in 2006--19 million families now 
affected who weren't affected last year.

[[Page S11740]]

  I am also here to talk about a promise Congress needs to follow 
through on, which is to protect these 19 million families and 
individuals from the alternative minimum tax for the tax year we are in 
right now, 2007.
  In 2006, 4.2 million families and individuals were captured by the 
AMT. For taxable year 2006, the legislation that temporarily increased 
the amount of income exempt from the alternative minimum tax expired. 
So, right now, and for the last 9 months, under current law, we expect 
around 23 million families and individuals to fall victim to the 
alternative minimum tax if Congress doesn't act.
  This chart illustrates the current situation, using the figures I 
have already referred to: 4.2 million people were paying the 
alternative minimum tax last year. But what is submerged underneath the 
surface there is the 19 million people who are affected because 
Congress has not taken action yet. Tax year 2007, then, is represented 
by the boat and is rapidly approaching the AMT iceberg. Right now, most 
of the iceberg--the part that represents the 19 million additional 
taxpayers who will be caught by the alternative minimum tax this year--
is under water.
  The full magnitude of this imminent disaster will become apparent 
when those 19 million families and individuals start working on their 
2007 tax returns starting January 2 of next year. Actually, the 
situation is worse than I implied--if you can imagine that it can be 
any worse than that. I wish to say that many families have already 
fallen victim to the alternative minimum tax. Of course, I am referring 
to those taxpayers who have to file quarterly returns, quarterly 
estimated returns.
  The last time I spoke to you here on the Senate floor was on the 
occasion of the estimated tax payments for the second quarter due. I 
wish to say I am also speaking to my fellow Senators, but I am not sure 
how many of them might be listening because between June, when I spoke 
last, and the 3 months since, estimated tax payments for the third 
quarter were due this past Monday, September 17.
  Before I go further, I want to specifically address the size of the 
population that makes estimated tax payments. In case anyone is 
thinking this is a very small group of people, the statistics of the 
income division of the IRS state that for tax year 2004, almost 11 
million families and individuals made estimated tax payments. I am not 
saying each of those filers would be captured this year by the 
alternative minimum tax, but I surely want to remind everybody of the 
possibility that the number of people making estimated tax payments is 
very large, and that those among them hit by the AMT--we have already 
failed them by not taking care of this before the first payments were 
made in January.

  As I have said, I last addressed the AMT on the Senate floor 3 months 
ago. In that time, no progress has been made on taking care of the 
problem of the AMT.
  The next chart actually portrays what the Senate leadership has 
accomplished in the past 3 months in regard to this issue. It shows a 
giant goose egg. I have served the people in Iowa in Congress for many 
years. In that time, I have learned that generally things do not happen 
overnight. It takes time to formulate ideas, and it takes time to build 
enough support to take action. That is why I am particularly unhappy 
with this giant goose egg.
  The current leadership has indicated that they have much they wish to 
accomplish this year. Time is rapidly running out and a plan for 
dealing with the AMT has not been proposed, much less a specific 
solution. The prospects of the AMT swallowing huge swaths of taxpayers 
is not a new problem. But until now, we have been able to keep it in 
check and not be 3 months away from 19 million more taxpayers being hit 
by it.
  Since 2001, the Finance Committee has produced bipartisan packages--I 
emphasize bipartisan--that have continually increased the amount of 
income that is exempt from the alternative minimum tax. This was 
possible thanks to the help of Senator Baucus, currently chairman of 
the Finance Committee. Together, Senator Baucus and I were able to 
minimize the damage caused by the AMT. These increases in exemptions, 
designed to keep pace with inflation and slow the spread of the 
alternative minimum tax, were never what I envisioned as a permanent 
solution. Rather, I consider a permanent solution to be the policies 
represented in a bill with the number S. 55, called the Individual 
Alternative Minimum Tax Repeal Act.
  Once again, I have to credit Chairman Baucus for his advocacy on 
behalf of tax fairness, as he introduced this bill with me, with 
Senators Crapo, Kyl, and Schumer signing on as cosponsors, and Senators 
Lautenberg, Roberts, and Smith also signed on as cosponsors.
  In case any of our friends in the House of Representatives are paying 
attention, a companion bill exists in H.R. 1366, called the Individual 
AMT Repeal Act. It was introduced by Congressman Phil English of 
Pennsylvania. What these bills--the ones I introduced in the Senate and 
Phil English's bill--accomplish is to completely repeal the AMT without 
offsetting it. That is, these bills do not replace taxes no longer 
collected from the AMT by raising taxes someplace else. I think it is 
very important to ensure that revenues that the Federal Government does 
not collect as a result of the alternative minimum tax reform are not 
collected someplace else.
  The alternative minimum tax was never meant to raise revenue from the 
middle class of America and was certainly not meant to bring in the 
amount of money under existing budget law and, oddly, that the 
Congressional Budget Office has to count. In other words, it should not 
be counted in the first place if you weren't intended to tax these 
middle-income taxpayers, but it happens because the AMT was not 
indexed. The AMT, then, was conceived as a way to promote basic tax 
fairness in response to concern about a very small number of wealthy 
taxpayers who were able to eliminate their entire income tax liability 
through legal means.
  The tax created to deal with this--the AMT--was originally, back in 
1969, created with the impact at that time of affecting about 1 person 
out of 500,000. Now, over the course of 38 years, this small salute to 
tax fairness has grown into a monstrosity of a revenue raiser.
  The next chart is taken from the Long-Term Budget Outlook, a 
Congressional Budget Office publication. It was last published in 
December 2005. These are the latest figures I have. This illustrates 
how the alternative minimum tax will swallow more taxpayers as revenue 
is collected from the alternative minimum tax, being the green line on 
the chart, over a period of the next 45 years almost, or any time 
between now and the next 45 years. You can see how it continually 
grows.
  That is what the CBO, through the present budget laws, has to count. 
But they count it from people--remember, the middle-income people who 
were never supposed to pay it as opposed to the superrich, a very small 
number of people, who would take advantage of every legal loophole--I 
emphasize ``legal'' loophole--and not pay a regular income tax but pay 
the AMT. I suppose that is out of the theory that everybody living in 
this country, particularly the wealthy, ought to pay a little bit of 
tax as a matter of fairness. You can argue whether that is a good 
rationale, but that was the rationale back in 1969.
  So you can see that there is a massive amount of revenue projected to 
come in from people who were never supposed to pay it that somehow you 
are supposed to offset, so that that revenue that was never supposed to 
come in is not lost. I know that doesn't sound reasonable to the 
average commonsense American listening to me out there, but that is the 
way our budget laws are, and that is the way Congress has to respond to 
it, whether it makes sense or not.
  Left alone, the Congressional Budget Office calculates that more than 
60 percent of the families and individuals in America will fall prey to 
the alternative minimum tax as it absorbs more than 15 percent of the 
total tax liability by the year 2050.
  This next chart, which is taken from the same congressional office 
publication, illustrates how under current law revenues collected by 
the Government are projected to push above their historical average and 
keep growing as the AMT brings in more and more money. We can see the 
historical average into the future for 40 years, but it

[[Page S11741]]

follows a historical average going back 40 years before now, and 
because of the alternative minimum tax mostly but also for other law 
changes, current law, we are going to see the revenue coming in to the 
Federal Government growing to almost 25 percent of gross national 
product.
  From a philosophical point of view and economic point of view, what 
is wrong with that? Philosophically, there is less freedom for the 
Americans. As we spend more of their money, they have less economic 
freedom. But more importantly, the economic harm that comes from 535 
Members of Congress spending 25 percent of the gross national product 
instead of using the historical average of about 18 percent, that 7 
percent difference means we are going to make decisions on how to spend 
it instead of the 137 million taxpayers in this country deciding how to 
spend it, where it will turn over the economy more times than if we 
spend it and do more economic good and create more jobs and have more 
economic freedom.
  That is what is at stake in this whole debate if we do not do 
anything about the alternative minimum tax and it continues to grow to 
15 percent of the total tax liability by the year 2050. This chart 
points out the increasing power of Congress through taking more money 
from the taxpayers without even changing the law if we do not do 
something about this alternative minimum tax.
  Anyone who maintains that the alternative minimum tax reform or 
repeal needs to be offset is not actually doing anything about the 
problem these charts illustrate. The problems the alternative minimum 
tax is responsible for are the ballooning Federal revenues above 
historical levels and a burden on middle-class taxpayers that keeps 
increasing over time. Offsetting the alternative minimum tax revenue 
does absolutely nothing to address these issues, and it seems to me to 
be an attempt to pretend to solve a real problem by actually trying to 
hide that problem.
  Aside from the long-term problems with the alternative minimum tax 
that we can solve by repealing it, the alternative minimum tax poses a 
short-term problem to the taxpayers who will fall into its clutches 
this year if Congress does not act.
  Putting aside the legitimacy of keeping this tax, it is not doing 
what it was intended to do. Putting aside the long-term solution, we 
are going to end up right now with 19 million more families and 
individuals being caught by the AMT this year. That 19 million will 
probably include many taxpayers making estimated tax payments. Some of 
these families and individuals may not be taking the AMT into account 
as they make their quarterly payments simply because they do not 
realize they ought to take this into consideration.
  Additionally, there may be some taxpayers who are required to make 
estimated tax payments when subject to the alternative minimum tax but 
are not required to make the estimated payments under the regular 
income tax system. At the end of this tax year, not only could those 
well-meaning filers find themselves subject to the alternative minimum 
tax, but they could also face the increased insult of being fined by 
the IRS for unintentionally miscalculating their estimated tax 
payments.
  I do not believe these well-intentioned taxpayers ought to be 
penalized because Congress has not come through on its promise to at 
least keep the AMT from running wild--in other words, going beyond 
those 4.5 million taxpayers who are already hit by it and not including 
the 19 million who are otherwise being hit because of inaction so far.
  That is why, on July 23, I dealt with this penalty issue by 
introducing S. 1855, called the AMT Penalty Protection Act. This 
legislation protects individuals from a penalty for failing to pay 
estimated taxes on amounts attributable to the AMT in cases where the 
taxpayers were not subject to the AMT last year. This is not a giveaway 
meant to compensate for the AMT, as it does not protect taxpayers who 
paid the AMT last year. Rather, this bill protects the families and 
individuals who do not yet appreciate the horrible impact our failure 
to act is going to have on them.
  I am not the only one who thinks this legislation is a good idea. We 
have these Senators--Senators Allard, Brownback, Collins, Hutchison, 
Smith, and Snowe--agreeing to cosponsor the legislation.
  In addition, I have received letters from the Committee on Personal 
Income Taxation, the New York City Bar, as well as the National 
Association of Enrolled Agents in support of the provisions of this 
safe harbor bill so that the IRS cannot apply interest and penalties 
resulting from the failure to pay estimated taxes on amounts resulting 
from the AMT in cases where the taxpayers were not liable for the AMT 
last year.
  I ask unanimous consent to have printed in the Record these letters 
to which I just referred.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                              National Association


                                           of Enrolled Agents,

                                   Washington, DC, August 3, 2007.
     Hon. Charles Grassley,
     Senate Finance Committee, Dirksen Senate Office Building, 
         Washington, DC.
       Dear Ranking Member Grassley: As President of the National 
     Association of Enrolled Agents (NAEA), I write on behalf of 
     40,000 enrolled agents to express our support for S. 1855, 
     the AMT Penalty Protection Act of 2007.
       In a June hearing held by the Senate Finance Committee on 
     the alternative minimum tax (AMT), NAEA Government Relations 
     Chair Frank Degen, EA, testified that the current short-term 
     approach to dealing with the AMT creates uncertainty and 
     hinders tax-planning. Many taxpayers are constantly faced 
     with an unpleasant choice when calculating their estimated 
     taxes to either assume that Congress will enact another AMT 
     patch, or follow the letter of the law literally. If Congress 
     fails to act, those who choose the former option will suffer 
     the consequences of underpayment. If Congress extends the 
     patch, those who choose the latter will likely receive a 
     large refund, amounting to an interest-free loan to the IRS.
       S. 1855 would prevent taxpayers who didn't pay AMT last 
     year from being punished for assuming Congress will extend 
     the AMT patch to this year. While not a permanent solution to 
     the AMT problem, this is a step in the direction of 
     certainty.
       We applaud you for your efforts to ease the burden of the 
     AMT.
           Sincerely,
                                                   Diana Thompson,
     President.
                                  ____

         New York City Bar, Committee on Personal Income Taxation,
                                    New York, NY, August 23, 2007.
     Re 2007 reform of alternative minimum tax.
     Hon. Max S. Baucus,
     Chairman, Senate Committee on Finance, Dirksen Senate Office 
         Building, Washington, DC.
     Hon. Charles B. Rangel,
     Chairman, House Committee on Ways and Means, Longworth House 
         Office Building, Washington, DC.
     Hon. Charles E. Grassley,
     Ranking Member, Senate Committee on Finance, Dirksen Senate 
         Office Building, Washington, DC.
     Hon. Jim McCrery,
     Ranking Member, House Committee on Ways and Means, Longworth 
         House Office Building, Washington, DC.
       Dear Chairman Baucus, Chairman Rangel, Senator Grassley and 
     Representative McCrery: The Personal Income Tax Committee of 
     the Association of the Bar of the City of New York would like 
     to respectfully offer comments on the important subject of 
     2007 Reform of the Alternative Minimum Tax. In particular, 
     the areas of main concern addressed by this letter are 
     support of a continued increased AMT exemption amount in 2007 
     and support of a short term 2007 AMT Estimated Tax Relief 
     provision of safe harbor from IRS interest and penalties 
     (which is particularly relevant for those taxpayers whose 
     estimated tax payments for 2007 have not taken into account 
     an extension of the 2006 increased AMT exemption).
       A short term 2007 AMT increased exemption is consistent 
     with the short term AMT relief enacted by Congress between 
     2003 and 2006. In so doing, Congress has held down the number 
     of AMT taxpayers to less than there would have been under 
     prior law. This patch expired at the end of 2006 and Congress 
     has not yet enacted a patch for 2007. Without the proposed 
     2007 AMT short term reform, the number of Americans affected 
     by the AMT for 2007 will increase from approximately four 
     million to more than 23 million. The Joint Committee on 
     Taxation projects that most of the 23 million taxpayers 
     affected would earn between $50,000 and $200,000, that is 
     middle income families. The problem with the AMT goes beyond 
     just those paying the tax.
       The AMT affects a lot of other taxpayers, as well. The AMT 
     forces many taxpayers to have to calculate their tax 
     liability twice, first under the regular tax system, and then 
     again under the AMT. The IRS estimates that the average 
     taxpayer takes about 30 hours filling out a Form 1040. The 
     AMT increases that burden.

[[Page S11742]]

                               background

       The first comprehensive AMT was enacted in 1982. The 
     purpose of the AMT, as stated in the legislative history, was 
     to ensure that no taxpayer with substantial economic income 
     should be able to avoid all tax liability by using 
     exclusions, deductions, and credits. Now, the AMT affects 
     middle income families who are working hard and raising 
     children. The Joint Committee on Taxation estimates that 4.2 
     million paid AMT in 2006. Among those taxpayers, 25,000 had 
     adjusted gross income of less than $20,000, hardly the 
     category of taxpayer that should have to be subject to 
     increased complexity and taxes due in computing and paying 
     their federal income taxes.
       In 2006, approximately 200,000 taxpayers subject to AMT had 
     adjusted gross income between $75,000 and $100,000. 
     Approximately 1.3 million AMT taxpayers had adjusted gross 
     income between $100,000 and $200,000. Only about 80,000 
     taxpayers had adjusted gross income of $1 million and above. 
     In summary, in 2006 more taxpayers earning less than $100,000 
     were subject to the AMT than taxpayers earning more than $1 
     million.
       The AMT has strayed from its original purpose. At its 
     inception, the AMT was enacted to insure that upper-income 
     taxpayers would pay some amount of income tax. Now, it is 
     subjecting middle-income taxpayers to an additional tax.


                              present law

       Present law imposes an alternative minimum tax. The 
     alternative minimum tax is the amount by which the tentative 
     minimum tax exceeds the regular income tax. An individual's 
     tentative minimum tax is the sum of (1) 26 percent of so much 
     of the taxable excess as does not exceed $175,000 ($87,500 in 
     the case of a married individual filing a separate return) 
     and (2) 28 percent of the remaining taxable excess. The 
     taxable excess is so much of the alternative minimum taxable 
     income (``AMTI'') as exceeds the exemption amount. The 
     maximum tax rates on net capital gain and dividends used in 
     computing the regular tax are used in computing the tentative 
     minimum tax. Alternative minimum taxable income is the 
     individual's regular taxable income increased by certain 
     adjustments and preference items.
       The exemption amounts are: (1) $62,550 for taxable years 
     beginning in 2006, and $45,000 for taxable years beginning 
     after 2006, for married individuals filing jointly and 
     surviving spouses; (2) $42,500 for taxable years beginning in 
     2006, and $33,750 for taxable years beginning after 2006, for 
     other unmarried individuals; (3) $31,275 for taxable years 
     beginning in 2006, and $22,500 for taxable years beginning 
     after 2006, for married individuals filing separately; and 
     (4) $22,500 in the case of estates and trusts.
       The exemption amounts are phased out by an amount equal to 
     25 percent of the amount by which the individual's AMTI 
     exceeds (1) $150,000 in the case of married individuals 
     filing a joint return and surviving spouses, (2) $112,500 in 
     the case of other unmarried individuals, and (3) $75,000 in 
     the case of married individuals filing separate returns or an 
     estate or a trust. These amounts are not indexed for 
     inflation. The AMT has statutory marginal tax rates of 26 and 
     28 percent. However, those with alternative minimum taxable 
     income in the phaseout range of the exemption level ($150,000 
     to $400,200 for married taxpayers filing jointly and $112,500 
     to $282,500 for unmarried individuals, in 2006) will have an 
     effective marginal tax rate of 32.5 and 35 percent, 
     respectively.


                        proposed 2007 amt reform

       It is our view that Congress should enact an AMT patch for 
     2007. The exemption amounts in effect for 2006 should be put 
     into effect for 2007, adjusted for inflation. Taxpayers 
     should be provided safe harbor from IRS penalties and 
     interest for failure to include estimated tax payments in 
     2007 that take into account an extension of the increased AMT 
     exemption provided in 2006. In computing tax for purposes of 
     the penalties dealing with estimated tax, a taxpayer would be 
     permitted to disregard the alternative minimum tax if the 
     individual was not liable for the alternative minimum tax for 
     the preceeding tax year.
       The amendments proposed herein should apply to taxable 
     years beginning after December 31, 2006.
       A 2007 AMT short term reform with an increased AMT 
     exemption would prevent expansion of the AMT, reduce 
     taxpayers' compliance costs and make routine tax planning 
     simpler. In addition, the short term reform proposed here 
     will enable Congress to address issues related to substantial 
     changes in our income tax system given the large number of 
     important provisions that are currently scheduled to 
     terminate in the next few years.
           Respectfully submitted,
                                                  Babcock MacLean,
                                                            Chair.

  Mr. GRASSLEY. Mr. President, I would like to believe this legislation 
is not necessary because we are going to prevent the AMT from 
swallowing 19 million taxpayers in 2000, but I am not optimistic 
considering the fact we have not acted yet.
  In closing, I encourage--and it is meant to encourage--the Democratic 
leadership to keep our promise with the American taxpayers and at least 
modify the exemption amounts for 2007. Of course, the best option is to 
completely repeal the AMT, and I am going to raise this issue with the 
Finance Committee members, and I am going to raise the issue with 
Members outside the committee. We ought to just get rid of it. It is 
stupid to be saying we are going to collect revenue from people who 
were never intended to pay, but we are counting that revenue. It is a 
big shell game. So I will be talking with my colleagues about the 
sensibility of just getting rid of something.
  I will tell my colleagues another reason for getting rid of the AMT. 
It is supposed to hit the super-rich. We are told by the IRS right now 
that there are about 2,500 of these super-rich who ought to be paying 
the alternative minimum tax--we would expect them to pay the 
alternative minimum tax--but they have found ways legally of even 
avoiding the alternative minimum tax. So we ought to just get rid of 
it. But for the time being, the only thing the taxpayers can rely on is 
the same goose egg we have been sitting on all year.
  Mr. GRASSLEY. Mr. President, I also wish to use my time to address 
another issue. I would like to continue, Mr. President.
  The PRESIDING OFFICER (Mr. Salazar). The Senator is recognized.

                          ____________________