[Congressional Record (Bound Edition), Volume 145 (1999), Part 5]
[Extensions of Remarks]
[Pages 6554-6555]
[From the U.S. Government Publishing Office, www.gpo.gov]




               INDIVIDUAL TAX SIMPLIFICATION ACT OF 1999

                                 ______
                                 

                          HON. RICHARD E. NEAL

                            of massachusetts

                    in the house of representatives

                       Wednesday, April 14, 1999

  Mr. NEAL of Massachusetts. Mr. Speaker, today I am introducing the 
Individual Tax Simplificaiton Act of 1999, and invite all my colleagues 
to join me in sponsoring this legislation.
  It is fitting that this bill on tax simplification is being 
introduced on the day before April 15th. At this time of year, 
simplification is on everyone's mind--and wish list. While it may not 
fulfill everyone's wish, this bill will eliminate approximately 200 
lines from tax forms, schedules and worksheets. My bill generally does 
this in a revenue neutral manner, and without moving money between 
economic income groups. As we all know, no more so than at this time of 
the year, the tax code is terribly complex, and has become dramatically 
more complex for average taxpayers during the past four years.
  A skeptic might argue that there is no constituency for 
simplification, but that is changing. A recent poll by ICR found that 
66 percent said the federal tax system is too complicated. Three years 
ago slightly less than half agreed.
  I believe that with a little compromise, we can enact significant tax 
simplification. That is why I have made sure this bill is essentially 
revenue neutral, so it contains no tax increase. And that is why the 
bill does not try to change the tax burden between economic income 
groups. This is not an attack on the wealthy, nor anyone else. As with 
any change in the tax law, there are some winners and losers--but I 
want to stress that this is incidental to the objective of the bil--
which is simplification that benefits us all.
  The bill has three parts. The first is based on legislation I 
introduced last year and introduced again earlier this year regarding 
nonrefundable personal credits. The second part simplifies the taxation 
of capital gains. The third part repeals two hidden marginal tax rate 
on high income individuals, and repeals the individual minimum tax.


   Title I--Simplification Relating to Nonrefundable Personal Credits

  In recent years, much tax relief has been given to taxpayers in the 
form of nonrefundable credits, like the two education credits and the 
child credit. These credits are not usable against the alternative 
minimum tax. That means that more and more individuals will lose all or 
part of these credits, and will have to fill out the extremely 
complicated AMT form. Congress recognized this problem last year by 
enacting my proposal to waive this for the 1998 tax year.
  The other problem with nonrefundable credits is that the phase out 
provisions vary from credit to credit, causing unnecessary complexity. 
In addition, the same additional dollar

[[Page 6555]]

of income can result in a reduction in more than one nonrefundable 
credit.
  It is fundamentally wrong to promise the American public tax relief, 
then take all or part of it away in a backhanded manner. This 
fundamentally flawed policy, enacted in 1997, will get worse each and 
every year as more American families find themselves to be AMT 
taxpayers simply because of the impact of inflation, or because of 
their desire to take advantage of the tax relief we have promised them. 
Not only that, this situation will also get worse an additional 
nonrefundable credits are approved by Congress, such as the President's 
proposals to assist taxpayers with long-term care needs, and the 
disabled workers tax credit.
  The bill addresses both concerns. First, it permanently waives the 
minimum tax limitations on nonrefundable credits, and on the refundable 
portion of the family (or child) credit which has the same problem with 
the AMT as nonrefundable credits. Second, the bill creates a single 
phase out range for the adoption credit, the family credit, and the 
education credits, replacing the current three phase out ranges.
  This part of the bill is paid for by reducing the income limitation 
on the family credit from $110,000 to $85,000 on a joint return, and 
from $75,000 to $58,000 for a single individual. This provides a slight 
increase in the income limits on the educaiton credits and the adoption 
credit, so about 85 percent of all families will be unaffected or 
receive tax reductions under this trade off.


             Title II--Simplification of Capital Gains Tax

  The second title of this bill is, essentially, Mr. Coyne's capital 
gains proposal from last year. Under current law, there are 5 different 
tax rates for long term capital gains, and a 54 line tax form that must 
be endured. Moreover, this part of the tax code is already scheduled to 
get worse because additional rates will take affect under current law 
in 2001 and 2006.
  The solution is clear. Replace this jumble of rates and forms with a 
simple 38 percent exclusion. Not only will this result in tremendous 
simplification (eliminating 36 of the 54 lines), but more than 97 
percent of individuals would be eligible for modest capital gains tax 
reductions. This section of the bill pays for itself.


Title III--Repeal of Certain Hidden Marginal Rate Increases, and of the 
                         Individual Minimum Tax

  The third title of the bill repeals the hidden marginal rate 
increases in current law, and repeals the individual minimum tax. Most 
of my colleagues understand the phrases, PEP and Pease. Under current 
law, itemized deductions are gradually reduced by 3 percent of adjusted 
gross income above approximately $124,000. This is known as the Pease 
provision. In addition, personal exemptions are phased out for incomes 
between approximately $187,000 and $309,000. This is PEP. If we did not 
hide the effect of these provisions of current law, more people would 
know that these provisions result in hidden marginal rate increases. 
These marginal rate increases begin at almost 1 percent for incomes 
above $124,000, and increases for those with incomes above $187,000 by 
about .78 percent for each dependent. The important point here is that 
current law has a hidden marginal rate increase, which gets worse as 
families grow larger.

  The second part of this title is complete repeal of the individual 
minimum tax. The minimum tax was intended to make sure that wealthy 
individuals did not overuse certain tax benefits and unfairly reduce 
their tax burden. It no longer accomplishes that goal. Most of the 
significant business related provisions have already been repealed. 
Since the AMT is not adjusted for inflation, more and more middle and 
upper middle income taxpayers are falling into the AMT. This is not 
what was intended, especially when you note that what pushes taxpayers 
into the AMT now, more often than not, are State and local income and 
property taxes, personal exemptions, and the nonrefundable credits. I 
repeat, this is not what Congress was trying to accomplish when the AMT 
was passed.
  My suggestion is to repeal it for individuals, and substitute a 
simple tax on adjusted gross income, and an increase in the current 
floor on miscellaneous itemized deductions. The current hidden tax is 
dropped, and is paid for with an explicit tax on the same individuals. 
They get simplification, and we convert a deceptive practice into an 
open one.
  Specifically, the replacement tax begins at 1 percent for adjusted 
gross incomes in excess of $120,000 on a joint return, and increases to 
2.08 percent for income greater than $150,000, which is where the 
minimum tax exemption begins to phase out. The bill would also increase 
the floor on miscellaneous itemized deductions to 4 percent for 
adjusted gross incomes greater than $100,000.


                               Conclusion

  Ironically, this simplification proposal must be complex, because it 
mirrors our current law. I want, therefore, to focus on what is 
important.
  This bill provides fairly dramatic simplification of the individual 
tax system.
  It eliminates approximately 200 lines on tax forms, schedules and 
worksheets.
  It is basically revenue neutral, so it can be accomplished during a 
year when there is no non-Social Security budget surplus to fund tax 
cuts.
  It does not attempt to shift money between income groups. The 
philosophy behind the bill is that those who benefit from tax 
simplification of the current code should offset any revenue loss 
involved.
  I have put the bill together this way to make this philosophy clear. 
While some families will be phased out of the child credit, the revenue 
raised is invested in other similar families for AMT relief and for 
increases in the adoption and education credits.
  The capital gains section of the bill is paid for internally to that 
section, so those who realize capital gains will have their current tax 
liability adjusted up or down slightly in order to achieve the 
simplification contained in the bill.
  Finally, those adversely affected by the hidden marginal rate 
increase of current law that worsens as a family gets larger, will have 
simplification and some relief offset by other better off taxpayers 
within their own economic group.
  It is estimated that this tax filing season will see 51 percent of 
individuals using tax return preparers, and that 16 percent will use 
computer software to prepare their return. Only about \1/3\ of 
individuals actually fill out their own forms. There is no excuse for 
that reality, and we should do something about it. Given the lack of 
resources to write a major tax bill, the reality that no one wants to 
pay for simplification no matter how much they support the goal, and 
the need to resolve the solvency issues surrounding Social Security and 
Medicare, I think the opportunity exists this year to solve some of the 
problems that bother all our constituents during this tax filing season 
in the manner that I have suggested. I am introducing this legislation 
to get this discussion going, and I hope it will be seriously 
considered by all parties.

                          ____________________