[Congressional Record (Bound Edition), Volume 147 (2001), Part 11]
[Extensions of Remarks]
[Page 16204]
[From the U.S. Government Publishing Office, www.gpo.gov]


[[Page 16204]]

                 BILL TO FIX ISO/AMT PROBLEM INTRODUCED

                                 ______
                                 

                          HON. RICHARD E. NEAL

                            of massachusetts

                    in the house of representatives

                        Thursday, August 2, 2001

  Mr. NEAL of Massachusetts. Mr. Speaker, today I am introducing with 
Mr. Davis of Virginia, Ms. Lofgren, Mr. Weller and several of our 
colleagues, legislation to alleviate the problem of the unfair tax 
imposed by the alternative minimum tax on many of our constituents who 
exercised incentive stock options last year. The bill represents a 
temporary patch for the tax year 2000.
  I have advocated repeal of the alternative minimum tax (AMT) for some 
years now. It no longer serves the function for which it was designed. 
The AMT was intended to make very high income individuals who heavily 
invested in tax shelters, pay some minimum amount of tax each year. 
However, the 1986 Tax Reform Act repealed most of these tax shelters, 
leaving the AMT with little impact on taxpayers until recently. Since 
the AMT is not adjusted for inflation while the regular tax base is, 
the AMT now increasingly hits families with large numbers of children, 
taxpayers in higher tax states, users of the education tax credits, 
and, in the case of incentive stock options, the unwary.
  Incentive stock options are a preference item for purposes of the 
alternative minimum tax. That means that you include for purposes of 
calculating the AMT the difference between the price you pay for a 
share of stock, and the value of the stock at time of exercise. For 
example, if you exercised an incentive stock option for $10 a share, 
and the stock was valued at $100 a share, you must include the 
difference--$90 a share--for purposes of calculating the AMT in the 
year you bought the stock. Unfortunately, most people have never heard 
of the AMT, or believe it applied to only high income individuals, and 
never took this into account in their decision making. If the stock 
increases in value, then you can pay the taxes you owe. But if your 
stock crashes in value, you still owe the same amount of tax. Last 
year, the stock of some people sank so low that they could sell all 
their stock and still not raise the amount they need to pay the tax 
they owe. People have complained about taking out a second mortgage on 
their home, emptying out their pension plans or education funds for 
their children, and selling all their other assets, just to pay the tax 
they owe on stock that has lost much of its value.
  What makes this situation our responsibility is that Congress told 
these people to hold onto their shares of stock. Congress provides in 
the regular tax base an incentive to hold their stock--a lower capital 
gains tax rate if they told their shares for at least a year. So, on 
the one hand, Congress tells them to keep their stock, and gives them a 
backhanded slap by means of the AMT when they listen to us.
  The bill we are introducing fixes this problem for last year. The 
bill states that, in effect, that you can recalculate your AMT tax 
preference using the difference between the amount you pay for a share 
of stock, and its value on April 15, 2001. Using the example above, if 
the value of your share fell from $100 on date of exercise to $30 on 
April 15, 2001, your tax preference would be $20 per share (instead of 
$90). Under this proposal, the more you have been hurt by the fall in 
the value of your stock, the more relief you get. For those who had 
their stock rise, this bill would not impact them at all.
  Some may argue that the bill is retroactive. This, however, has never 
been a high hurdle for a pro-taxpayer provision. In fact, this week's 
energy bill contains a retroactive tax provision, as did the Bush tax 
cut signed into law June 7, 2001.
  Others may argue that these individuals simply made a bad investment 
decision. A bad investment decision does not rest on a tax trap set by 
Congress, and masked by an outdated and hopelessly complex ``second'' 
tax system. Without the AMT, these individuals would simply have lost 
the value of their stock when it declined, as would any other investor. 
No one is talking about restoring any value to that stock, and 
``bailing'' these people out. Individuals who exercised incentive stock 
options are actually much worse off than those who simply made a bad 
investment decision, because these individuals lose the value of their 
stock and get to pay the AMT tax on that lost value as well.
  This bill costs $1.3 billion over five years according to the Joint 
Tax Committee. It is bipartisan, and has Members from across the nation 
as original cosponsors. Senator Lieberman is introducing a companion 
bill in the Senate.
  Mr. Speaker, this tax bill needs to be enacted this year, so that 
affected taxpayers can file for relief this year. We are working to 
attach this legislation to any tax bill that moves forward this fall.

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