[Congressional Record Volume 153, Number 185 (Wednesday, December 5, 2007)]
[Senate]
[Pages S14772-S14773]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                 PAYING FOR THE ALTERNATIVE MINIMUM TAX

  Mr. LEVIN. Madam President, I rise today to urge my colleagues to 
support fairness in our Tax Code and fiscal responsibility in our 
budgets and appropriations.
  Sometime in the next 2 weeks, the Senate will likely be asked to vote 
on legislation to fix the alternative minimum tax--what we call the 
AMT. The issue before us is not whether the AMT ought to be fixed. 
Fixing it is the only fair thing to do for America's middle-class 
families. The real issue is whether we are going to fix it in a way 
that is fiscally responsible, so that we do not leave our children and 
our children's children to foot the bill--yet again--for our spending.
  After 6 years of runaway deficits and Tax Code revisions that have 
disproportionately benefited the wealthiest among us, Democrats 
committed during the 2006 election that we would reinstitute fiscal 
responsibility. We pledged to play it straight with taxpayers: we said 
we will not run up deficits with the cost of new legislation; we will 
pay for what we legislate. That pledge applied to program increases, to 
new programs, and to tax cuts. The Democrats' fiscally responsible, 
pay-as-you-go pledge is the only way we have been able to temper 
deficit spending that has once again become the norm in Washington over 
the past 7 years.
  So far we have held firm on the so-called ``pay-go'' commitment. But 
fixing the AMT carries a cost of $51 billion, and pressure is mounting 
on the Senate to break that commitment and add to the record $9 
trillion national debt that is already threatening future generations. 
In the name of fairness and fiscal responsibility, the Senate should 
resist that pressure.
  President Bush has recently used the rhetoric of fiscal 
responsibility.
  President Bush said, ``You have to have some fiscal discipline if you 
want to balance the federal budget.''
  The distinguished minority leader, Senator McConnell added that it is 
time ``to get us out of the business of political theater and back to 
the business of governing in a fiscally responsible way.''
  I agree with those sentiments even if they are 6 years too late. But 
being fiscally responsible as we fix the AMT will require the Senate to 
do more than talk the talk about fiscal discipline; it will require the 
Senate to walk the walk by paying for any tax reductions, and not 
paying for them by increasing the national debt.
  Unfortunately, some of our Republican colleagues have a blind spot: 
they call for fiscal discipline when Congress wants to pay for an 
earmark or a new program, but when tax cuts are on the line, fiscal 
discipline is suddenly tossed into the legislative trash can. True 
fiscal discipline means we have to look at the bottom line for 
taxpayers no matter what kind of legislation we are debating, including 
a fix for the AMT.
  The AMT was intended, when adopted in 1969, to ensure that every 
American with significant income contributes at least some taxes to 
this great country. It was designed to stop the highest income 
taxpayers from using tax loopholes to escape contributing one thin dime 
to Uncle Sam, ensuring that they shoulder their fair share of the tax 
burden.
  The AMT included exemptions to make sure that middle class Americans 
were not forced to pay higher AMT taxes instead of their normal tax 
burden. But in recent years the AMT has gone wrong. The problem is that 
the AMT's exemptions protecting the middle class have not been adjusted 
for inflation, and the AMT is now loading additional taxes onto the 
backs of working families who already pay their fair share.
  In 2006, 4 million taxpayers had to pay higher taxes due to the AMT. 
In 2007, with no fix, 23 million Americans will have their taxes 
increased because of the AMT. That includes 830,000 taxpayers in 
Michigan, which is 18 percent of all the taxpayers in the State. Only a 
few of these Michigan taxpayers are upper income, and most are not 
taking advantage of unfair tax loopholes. But if they are caught by the 
AMT, all 830,000 Michiganders could be hammered with hundreds or even 
thousands of dollars in additional taxes.
  There is a consensus in Washington that the AMT exemptions ought to 
be expanded so that the AMT impacts only upper income Americans, and 
not middle class Americans already working hard just to get by. The 
only issue is whether we are going to pay for it.
  Protecting the middle class from AMT taxes in 2007 will cost the 
Treasury about $51 billion over 10 years. Faced with this cost, the 
House has taken the fiscally responsible course of action. It has sent 
us a bill, H.R. 3996, which would protect the middle class from the AMT 
sledgehammer in a way that is revenue neutral and does not add to our 
national debt.
  The House bill includes three fiscally responsible provisions that 
would raise $52 billion to pay for the AMT fix. These measures would 
ensure fairness in the taxes levied on stock profits and in the taxes 
paid by hedge fund managers. Each provision represents an important tax 
reform in its own right that merits our support as a matter of tax 
fairness.
  The first of the House measures would require stock brokers to start 
reporting the cost basis of the securities they sell for their clients 
on the 1099 forms that brokers already send to those clients and to the 
Internal Revenue Service, IRS. Reporting the cost basis on these forms 
is a simple way to help ensure that the stock owners accurately report 
to the IRS any profits earned from the sales of the stock, and it 
enjoys broad, bipartisan support. It is expected to generate about $3.4 
billion in added tax revenues over the next 10 years.

  The next two House provisions would affect the income taxes paid by 
hedge fund managers, a small group of investment advisers who are among 
the wealthiest in America today.
  Hedge funds are private investment funds accessible only to wealthy 
individuals and large institutional investors. The experts who decide 
how to invest these dollars are typically called hedge fund managers. 
In 2006, there were about 2,500 hedge funds registered with the 
Securities and Exchange Commission, SEC. Hedge funds take money only 
from sophisticated investors such

[[Page S14773]]

as pension funds, university endowments, and individuals who have at 
least $5 million in investments. By taking investment dollars only from 
sophisticated investors, hedge funds can avoid complying with SEC 
regulations that apply to mutual funds and other investment funds 
available to the general public.
  Last year, press reports indicate that the top U.S. hedge fund 
manager made $1.7 billion in compensation. That's billion. The average 
compensation for the top 25 hedge fund managers was around $570 
million. Each. Think about that. For comparison, the 2006 median income 
for U.S. households was less than $49,000, which is less than one ten 
thousandth of the income collected by those top hedge fund managers.
  Hedge fund managers make their money by charging their clients a 
management fee equal to 2 percent of the funds provided to the hedge 
fund for investment and, in addition, by taking 20 percent of the 
profits earned from those investments. The 20 percent share of the 
investment returns from hedge funds is known as ``carried interest.'' 
Under current law, most hedge fund managers claim that this carried 
interest qualifies as capital gains subject to a maximum tax rate of 15 
percent, rather than as ordinary income subject to a maximum tax rate 
of 35 percent.
  When hedge fund managers take 20 percent of their clients' investment 
returns, they are being compensated for managing those client funds; 
they are not collecting profits from investing their own money. 
Characterizing this compensation as capital gains is a tax dodge that 
has been allowed to go on for too long. This tax loophole allows hedge 
fund managers to pay a 15-percent capital gains rate on millions--or 
even billions--of dollars in income. Meanwhile, a receptionist in the 
same office receiving a $50,000 salary pays at a regular tax rate. 
Making a salaried worker pay a higher tax rate than the managers who 
are making hundreds of millions of dollars is a tax travesty, and it 
has got to stop.
  The House bill would restore fairness by putting an end to this tax 
loophole. The second provision of the House bill would make it clear 
that the 20 percent carried interest is, in fact, taxable as ordinary 
income, making hedge fund managers pay the same income tax rates as 
ordinary Americans. If enacted, it would raise about $25.6 billion over 
10 years, half the cost of fixing the AMT.
  The third provision in the House bill would address a smaller group 
of hedge fund managers--those routing their compensation through 
offshore corporations located in tax havens.
  The hedge fund managers participating in this tax dodge typically 
don't live or work in the tax haven where the offshore corporation is 
incorporated. The offshore corporation often doesn't have any physical 
presence in the tax haven either--it functions as a shell company with 
no full-time employees or physical office. The whole arrangement is a 
phony setup to enable the hedge fund manager to appear to get paid 
outside the United States, direct the offshore corporation to place the 
compensation in an offshore retirement plan, and defer payment of any 
U.S. taxes on that compensation until sometime in the future. In the 
meantime, the offshore corporation can invest the funds tax free and 
accumulate investment returns for the hedge fund manager. The result of 
all this tricky maneuvering is that hedge fund managers are able to 
defer U.S. income taxes and circumvent parts of the U.S. Tax Code that 
limit tax free contributions to retirement plans. Some are able to 
defer paying taxes on hundreds of millions of dollars of annual income.
  The House bill would put an end to this offshore tax dodge by 
requiring hedge fund managers to pay taxes on any earnings from their 
deferred offshore compensation, as those earnings accrue. The tax-free 
ride would be over. If enacted, this provision would raise $23.8 
billion over 10 years.
  Requiring accurate reporting of stock profits, applying the same tax 
rates to carried interest as to the income of ordinary Americans, and 
taxing deferred offshore investment income are provisions that promote 
tax fairness and make a lot of sense. Together, these three House 
provisions would raise more than $52 billion over 10 years, enough to 
pay for the entire $51 billion AMT fix so that we can protect middle 
class Americans from the AMT sledgehammer without running up the 
national debt.
  So why is the Senate hesitating to enact the House bill?
  Some claim that forcing hedge fund managers to pay their fair share 
of taxes would somehow put an end to the capitalist spirit in America. 
Whatever the merits of the argument for lower taxes on capital gains, 
those arguments certainly do not make any sense when applied to income 
earned for servicing and managing other peoples' capital. Surely the 
person who earned $1.7 billion would have had that same capitalist 
spirit and zeal for investing whether his take home pay was $1.7 
billion or $1.1 billion.
  Some of my colleagues argue that the Senate just should add the $51 
billion cost of the AMT fix to the deficit and leave it at that. But 
when some taxpayers are given a free ride, the rest will inevitably be 
asked to make up the difference, whether it is through increased debt 
or higher taxes down the road. We all know that there is no free lunch, 
and there is no free tax cut, and history shows that when upper income 
groups avoid paying taxes, the middle income groups end up footing the 
tax bill. Unfortunately, some continue to grasp onto the fiscally 
irresponsible attitude that, in just the last 7 years, has added $3.5 
trillion to the $9 trillion debt ditch already threatening the economic 
well-being of the next generation. And they would dig that debt ditch 
deeper--instead of paying for the AMT tax cut--primarily to protect 
hedge fund managers from paying their fair share of taxes.
  I don't understand how some can claim that the deficit matters when 
the debate is over $22 billion in appropriations for health, education 
or veterans, but not when the issue is $51 billion in tax benefits for 
the wealthiest Americans.
  The bottom line is that the House found the political will to impose 
tax fairness on hedge funds when they passed H.R. 3996. The Senate can 
and should do the same. If we don't--if we give in to the pressure to 
break the pay-as-you-go rules that have so far held firm in the 
Senate--it will be that much easier to break the rules again in the 
future. Giving up on pay-go would let down American taxpayers who are 
counting on us to act responsibly and pay for what we legislate.
  If the Republican filibuster continues and succeeds, and if we cannot 
muster 60 votes to break it, we would then be forced with the choice of 
raising taxes on 23 million working families or violating our pay-as-
you-go rules. I would protect my constituents at the expense of an even 
deeper national debt. But we don't have to go that way, and we 
shouldn't. With the House bill we can protect our constituents from 
unintended tax increases, we can ensure fairness in the tax code, and 
we can avoid increasing the Federal deficit.
  I urge my colleagues, Republicans and Democrats, to take a look at 
the tradeoffs presented in the House bill. The House bill will allow us 
to fix the AMT for a year, and at the same time ensure that the 
wealthiest among us contribute their fair share to this great country. 
I urge my colleagues to take seriously Congress's commitment to fiscal 
responsibility as well as fairness, and to pass H.R. 3996.
  I yield the floor.
  I suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The assistant legislative clerk proceeded to call the roll.
  Mr. REID. Madam President, I ask unanimous consent that the order for 
the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.

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