[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.
____________________