[Congressional Record Volume 153, Number 162 (Wednesday, October 24, 2007)]
[Senate]
[Pages S13315-S13317]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                        ALTERNATIVE MINIMUM TAX

  Mr. WYDEN. Mr. President, this country is headed toward a total 
meltdown on taxes. I am going to spend a few minutes this afternoon to 
talk about how that can be cooled off for a bit.
  Yesterday, Treasury Secretary Paulson warned that unless the Congress 
acts within the next month on the alternative minimum tax, up to 50 
million households, more than a third of all taxpayers, could be 
clobbered with new taxes. Congress has known for some time that unless 
the alternative minimum tax is addressed, 23 million taxpayers would be 
hit with the double whammy of having to calculate their taxes twice, 
and typically pay a higher tax bill.
  First, they are going to have to do their taxes using the regular 
1040 form; then they will have to calculate their taxes using the 
alternative minimum tax, which has a completely different and more 
complex set of forms.
  Having to do your taxes once is bad enough. On average, that takes 
something like 15 to 30 hours, depending on whether a taxpayer is 
itemizing. But having to do your taxes is simply bureaucratic water 
torture.
  Yesterday's announcement by Treasury Secretary Paulson revealed that 
twice as many taxpayers as previously estimated could be put in 
bureaucratic limbo by the alternative minimum tax and face delays in 
processing their returns and getting a tax refund. The problem is going 
to get worse and worse each year, as more and more taxpaying Americans 
are dragged into the alternative minimum tax parallel universe of tax 
rules, because the tax law is now stuck in a time warp.
  It was never indexed for inflation. If Congress does not act, an 
estimated 30 million taxpaying Americans are going to be hit by the 
alternative minimum tax double whammy in 2010.

[[Page S13316]]

  The Congress has not been able to get ahead of the problem. It is 
simply, at this point, trying to keep the problem from getting worse. 
Each year, the cost of even the so-called temporary patch to keep the 
AMT from clobbering more persons goes up. This year it will cost $55 
billion to preserve the status quo. The next year the cost will go to 
$80 billion. Over 10 years the cost is an astounding $870 billion.
  The Senate Finance Committee, on which I serve, is trying to find a 
way to pay for a 1-year fix. Senators are working in good faith in a 
bipartisan fashion, but there is not a huge pot of money out there to 
pay for a $55 billion patch for the alternative minimum tax.
  I will be working with my colleagues on a bipartisan basis to look at 
every conceivable possibility to come up with the money for 1 year of 
alternative minimum tax relief. But certainly the Congress ought to 
start, and start now, to find a clear path out of the budgetary haze. I 
think that path and all roads that the Congress ought to be looking at 
should lead to comprehensive tax reform in our country.
  This week the House Ways and Means chairman plans to unveil his 
proposal that would repeal the alternative minimum tax as part of a 
larger tax reform effort. Over the summer, Treasury Secretary Paulson 
called for corporate tax reform.
  Ways and Means Chairman Rangel has indicated he is going to look at 
the issue of corporate reform as part of broader legislation he wants 
to consider. But I think there is an opportunity now, if the 
administration would engage the Congress on tax reform, and there is a 
model. The model is one where a Republican President, Ronald Reagan, 
worked with the Democratic Congress to achieve historic reform in 1986. 
It was based on a simple set of principles. Those principles were: It 
ought to be possible for everybody in our country to get ahead. It 
ought to be possible for people who work for a wage and people who make 
money through investments to get ahead.
  It was a system that kept progressivity so that there was a sense of 
fairness for all Americans. It was a system based on cleaning out a lot 
of unnecessary tax breaks, clutter in the Tax Code, in order to finance 
reform.
  That is what I have proposed to do in legislation that I call the 
Fair Flat Tax Act. I believe there are real opportunities for 
bipartisan reform, starting with the issue of tax simplification. In 
our Fair Flat Tax Act we have a 1-page 1040 form, something like 30 
lines long.

  President Bush had a tax reform commission that looked at reform. 
Their simplification process involved a form that was something like 34 
lines long. For purposes of Government work, that is about the same 
thing. We could get a bipartisan agreement on tax simplification, if 
the President engaged the Congress fairly quickly. Certainly, the other 
issues will take a great deal more thought and involve more complexity, 
but I have been asking witnesses who come before the Finance Committee 
their views about tax reform. These are experts who come from across 
the political spectrum. They share widely differing views. But of the 
witnesses who came to the Finance Committee, 19 out of 20 witnesses 
agree with my fundamental premise that the model of 1986, holding down 
rates for everybody, keeping progressivity and financing it by getting 
rid of loopholes and breaks, those witnesses all said the 1986 model, 
put together by the late President Reagan and Democrats in Congress, is 
still a model that makes sense for today.
  One of the witnesses even said:

       Baseball fans remember the moment when Babe Ruth pointed at 
     the stands and hit a home run, and tax geeks remember the 
     1986 Act with similar relish.

  Like the 1986 act, I start with simplification, as I have outlined. 
Then I look to make the Tax Code flatter to make sure that instead of 
six individual brackets, we would have perhaps three. I start with the 
rates Ronald Reagan started with, but I am not wedded to those 
particular rates. Ronald Reagan and Bill Bradley and others in 1986 
looked at something in the vicinity of 15 and 28 percent. The point is, 
if Members of this body, working with the President on a bipartisan 
basis, want to get into this, it would be possible to look at 
comprehensive tax reform now. The alternatives, as the Senate sees how 
difficult it is to fix the alternative minimum tax and deal with 
various proposals as it relates to investment and hedge funds, strike 
me as nowhere near as appealing as dealing with comprehensive tax 
reform.
  Many have raised the question of the issue of the differential 
treatment between work and wealth. It is a fact that the cop walking 
the beat today who makes their money on wages pays taxes at a 
significantly higher rate than somebody who makes their money from 
investments. That is a fact that ought to trouble all Americans. What 
we ought to be trying to do is not pit those two against each other but 
look at an approach such as the one pursued in 1986 so that all 
Americans have a chance to get ahead. That is what we are about as a 
nation, not pitting one group of people against another. We want people 
who work for a wage to have a chance to get ahead as well as pay for 
necessities for their families. We all understand how important 
investment is at a time when we face great economic challenges 
globally. The fair flat tax of 2007 seeks to try to ensure that all 
Americans would have an opportunity to get ahead and provides real 
relief to the middle class through fewer exclusions, exemptions, 
deductions, deferrals, credits, and special rates for certain 
businesses and activities and through the setting of one single flat 
corporate rate.
  On the individual side, the fair flat tax ends favoritism for 
itemizers while approving deductions across the board. The standard 
deduction would be tripled for standard filers from $5,000 to $15,000 
and raised from $10,000 to $30,000 for married couples. As a result, 
the vast majority of Americans would be better off claiming the 
standard deduction than having to itemize their deductions, so filing 
will be simplified for all Americans. We also keep the deductions most 
used by middle-class families, as Ronald Reagan and Bill Bradley and 
others who worked so hard in 1986 did. We protect the home mortgage 
interest break, the one for charitable contributions, and the credits 
for children, education, and earned income. But nobody would have to 
calculate their taxes twice under the Fair Flat Tax Act.
  The alternative minimum tax would be eliminated. This is particularly 
important right now as citizens look at the challenges they are going 
to face next year.
  What makes the Fair Flat Tax Act unique is it also corrects one of 
the most glaring inequities in the current tax system; that is, 
regressive State and local taxes. Under current law, low and middle-
income taxpayers get hit with a double whammy once again. Compared to 
those who are more fortunate, they pay more of their income in State 
and local taxes. Poor families pay more than 11 percent, and middle-
income families pay about 10 percent of their income in State and local 
taxes, while more fortunate individuals pay only about half. Because 
many low- and middle-income taxpayers don't itemize, they get no credit 
on their Federal forms for paying State and local taxes. In fact, two-
thirds of the Federal deduction for State and local taxes goes to those 
with substantial incomes. Under the Fair Flat Tax Act, for the first 
time the Federal code would look at the individual's entire tax 
picture, their combined Federal, State, and local tax burden, and give 
credit to low and middle-income individuals to correct for regressive 
State and local taxes.
  What this all means--and we had Jane Gravelle and her excellent team 
at the Congressional Research Service work on these numbers--is that 
the typical middle-class family with wage and salary income up to 
approximately $150,000 a year would see tax relief in a way that would 
not cause the Federal Government to lose revenue.
  Finally, by simplifying the code, there are other benefits. With a 
simpler system, it would be harder for individuals to take advantage of 
the system and easier for the Internal Revenue Service to catch those 
who do cheat. At present, there is a tax gap between taxes owed and 
collected of over $300 billion per year. Chairman Baucus and Senator 
Grassley have done yeoman's work on this issue. I believe the Fair Flat 
Tax Act can make, in addition, a significant dent in dealing with the 
tax gap, raising a significant amount of revenue from a source that 
would not

[[Page S13317]]

increase taxes. The Fair Flat Tax Act, as it relates to the tax gap 
issue, is a win for all Americans except for those who have been 
cheating the system.
  I am obviously aware that the clock is ticking down on this session 
of Congress. Certainly, by early next year, in the thick of a 
Presidential election, something such as this is daunting. But it is 
time for Congress to get started now on what witness after witness 
after witness in the Finance Committee is saying; that is, the urgent 
need, after scores of tax changes, to get about draining the swamp.
  To give you an idea of what the numbers are with respect to tax 
changes, the latest analysis shows we have had something akin to 15,000 
tax changes. That comes to three for every working day. Even regional 
IRS offices, according to practitioners I talk to, cannot agree among 
themselves as to how to apply this increasingly complicated Tax Code.
  It is time to get started. The Bush tax cuts expire in 2010. 
Certainly, that is going to cause additional confusion and chaos for 
taxpayers. With the problems the Congress is wrestling with now, such 
as the immediate crunch of the alternative minimum tax and with the 
hammer poised to come down in 2010 with all the other expiring tax 
laws, there is a strong incentive for members of both political parties 
to come to the table and get to work on tax reform.
  I hope colleagues will look at the Fair Flat Tax Act as a way to 
start the debate. I don't consider it the last word on this 
extraordinarily important subject, but I hope we can begin the debate 
now.
  I yield the floor and suggest the absence of a quorum.
  The PRESIDING OFFICER (Mr. Cardin). The clerk will call the roll.
  The assistant legislative clerk proceeded to call the roll.
  Mr. LOTT. Mr. President, I ask unanimous consent that the order for 
the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. LOTT. Mr. President, what is the order of business at this time?
  The PRESIDING OFFICER. We are in morning business.
  Mr. LOTT. Until what time?
  The PRESIDING OFFICER. There is no time limit.

                          ____________________