[Congressional Record (Bound Edition), Volume 153 (2007), Part 3]
[Senate]
[Pages 3640-3642]
[From the U.S. Government Publishing Office, www.gpo.gov]




                        ALTERNATIVE MINIMUM TAX

  Mr. GRASSLEY. Mr. President, lately we have heard a lot about the 
alternative minimum tax and the difficulties involved in fixing it. 
Right now is tax time so a lot of people are going through the process 
of determining whether they owe the alternative minimum tax. I will 
visit with taxpayers about that. At another time I will go into greater 
detail regarding some of these problems and what we need to do to fix 
the alternative minimum tax.
  Right now I want to explain how we got into this situation. Of 
course, as with anything, it would be foolish to go

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forward on this issue without looking back to see how we got to where 
we are now, after 40 years of the alternative minimum tax. The 
alternative minimum tax, then, obviously has been with us for that long 
a period of time.
  The individual minimum tax was the original name of the alternative 
minimum tax and was enacted first in 1969. This chart I am displaying 
highlights a few of the important and most recent milestones in the 
evolution of the AMT. I will not go into each of those milestones in 
detail, but by looking at the chart you can see the AMT has not been a 
constant. There has been an alternative minimum tax, but it has had 
some changes in the last 38 years.
  First, the history of the AMT. In the 1960s, Congress discovered only 
155 taxpayers--all people with incomes greater than $200,000 a year--
were not paying any taxes whatever. These taxpayers were able to use 
legitimate deductions and exemptions to eliminate their entire tax 
liabilities--all legally. To emphasize, what they were doing was not 
illegal, but Congress could not justify this at that time and it 
determined at that time that wealthy Americans ought to pay ``some'' 
amount of tax to the Federal Government regardless of the amount of 
legal ways of not paying tax.
  When Congress decided to do this, it was calculated only 1 in 500,000 
taxpayers would ever be hit by the alternative minimum tax. According 
to the Bureau of Census, we had at that time about 203 million people 
compared to 300 million today. Making the assumption that every single 
American was a taxpayer, the individual minimum tax was originally 
calculated to affect only 406 people. We get that by dividing 203 
million by 500,000. In 1969 Congress was motivated by the situations of 
the 155 taxpayers to enact a tax calculated to impact about 406 people.
  Clearly, the situation has changed dramatically in the last 30 years 
because this year the AMT is going to hit several million taxpayers. 
Although not its only flaw, the most significant defect of the 
alternative minimum tax is that it was not indexed for inflation. If it 
had been indexed for inflation, we would not be dealing with this tax 
problem and millions of people this year would not have to figure out 
if they owed the alternative minimum tax.
  The failure to index the exemptions and the rate brackets, the 
parameters of the AMT, is a bipartisan problem. Perhaps a most notable 
opportunity to index the AMT for inflation was the passage of the Tax 
Reform Act in 1986. That law was passed by a Democratic House, a 
Republican Senate, and signed by a Republican President. It is worth 
pointing out at that time, because of the bipartisan cooperation, 
indexing was a relatively new concept, and even though they had a 
bipartisan opportunity, they did not take advantage of it. One can 
argue that indexing of the AMT should have received more attention, but 
the fact is it did not then or any time since then, so we have the 
problems I am discussing today.
  Today it is impossible for anyone to use the excuse that indexing is 
a new concept. Maybe it could be used in 1986. In a regular tax system, 
the personal exemptions, the standard deduction, the rate brackets are 
indexed for inflation. Government payments such as Social Security 
benefits are indexed for inflation and people would be hard pressed to 
go into most schools and find a student who does not at least know that 
inflation was something to be avoided or at least to be compensated for 
through indexing.
  Despite what must be a nearly universal awareness of inflation, 
though, the alternative minimum tax, the Internal Revenue Code 
equivalent of a time capsule, remains the same year after year as the 
world changes around it. It must be obvious to everyone that the value 
of a buck has changed a lot in the last 38 years, and all here are 
experienced enough to have witnessed that change.
  More than anything else, the problem posed by the alternative minimum 
tax exists because of a failure to index that portion of the Tax Code 
for inflation. Although $200,000 was an incredible amount of money in 
1969, the situation is different today. I am not saying that $200,000 
is not a lot of money--because it is, obviously, to most middle-income 
people a lot of money--but $200,000 is certainly going to buy less 
today than it did in 1969.
  I also emphasize that I am not the only one saying the failure to 
index the alternative minimum tax for inflation is what is causing it 
to consume more and more of the middle-income taxpayers. On May 23, 
2005, the Subcommittee on Taxation and IRS Oversight, the Committee on 
Finance, held a hearing entitled ``Blowing the Cover on the Stealth 
Tax: Exposing the Individual AMT.'' At that hearing, the national 
taxpayers advocate Nina Olson said:

     [t]he absence of an AMT indexing provision is largely 
     responsible for increasing the numbers of middle-class 
     taxpayers who are subject to the AMT regime.

  Robert Carroll, who is now Deputy Assistant Treasury Secretary for 
tax analysis and then was in the acting position, same title, 
testified:

     [t]he major reason the AMT has become such a growing problem 
     is that, unlike the regular tax, the parallel tax system is 
     not indexed for inflation.
  We also had at that hearing Douglas Holtz-Eakin, who at that time was 
director of the nonpartisan Congressional Budget Office:

       If the 2005 [increased AMT] exemptions were made permanent 
     and, along with other AMT parameters, indexed for inflation 
     after 2006, most of the increase over the coming decade in 
     the number of taxpayers with AMT liability would disappear.

  Clearly, there is a consensus among knowledgeable people that the 
failure to index the AMT for inflation has been and continues to be a 
serious problem and, in fact, for the most part, would be a solution to 
the problem if you want to maintain the AMT. If you want to argue for 
doing away with the AMT, that is another ball game.
  What makes the failure to index the AMT in 1986 and other years more 
disastrous is repeated failure to deal with the problem in additional 
legislation that has actually compounded the problem posed by the 
alternative minimum tax.
  Before I continue, I will catalog the evolution of the alternative 
minimum tax rate for a moment. The 1969 bill gave birth to the 
alternative minimum tax which established a minimum income tax rate of 
10 percent in excess of the exemption of $30,000. In 1976, the rate was 
increased to 15 percent. In 1978, graduated rates of 10, 20, and 25 
were introduced. In 1982, the alternative minimum tax rate was set at a 
flat rate of 20 percent and was increased to 21 percent in 1986. This 
is not a complete list of legislative changes and fixes, and I am sure 
no one wants me to recite a full list but, very importantly, I want to 
make sure that everyone realizes Congress has a long history of trying 
to fiddle with the AMT in various ways but without doing anything 
permanent to it. Hence, we are here again this year considering what to 
do.
  Now, a great detail on recent bills impacting the AMT. In 1990, the 
Omnibus Budget Reconciliation Act is a result of the famous Andrews Air 
Force summit between President Bush and Democratic leaders on Capitol 
Hill. Probably Republicans were involved, as well. That legislation 
raised the alternative minimum tax rate from 21 percent to 24 percent 
and did not adjust the exemption levels. That means every person who 
had been hit by the AMT would continue to be hit by the AMT but be hit 
harder.
  Then we had the same title, but in 1993 we had the Omnibus Budget 
Reconciliation Act. The exemption level was increased to $33,750 for 
individuals and $45,000 for joint returns, but that was accompanied by 
yet an additional rate increase. In 1993, the tax increase passed this 
Senate with just Democratic votes for it. No Republican voted for it.
  Once again, graduated rates were introduced, except this time they 
were 26 percent and 28 percent. By tinkering with the rate and 
exemption levels of the alternative minimum tax, these bills were only 
doing what Congress has been doing on a bipartisan basis for almost 40 
years, which is to undertake a wholly inadequate approach to a

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problem that keeps getting bigger and bigger and bigger.
  Aside from this futile tinkering that has been done every few years, 
Congress has, in other circumstances, completely ignored the impact of 
the tax legislation on taxpayers caught by the alternative minimum tax. 
In the 1990s, a series of tax credits, such as the child tax credit and 
lifetime learning credit, were adopted without any regard to the 
alternative minimum tax. The alternative minimum tax limited the use of 
nonrefundable credits, and that did not change. In other words, because 
of the AMT, we did not accomplish the good we wanted to with those 
credits for lower middle-income and lower income people. Congress 
quickly realized the ridiculousness of this situation and waived the 
alternative minimum tax disallowance of nonrefundable personal credits, 
but it only did it through the year 1998.
  In 1999, the issue again had to be dealt with. The Congress passed 
the Taxpayer Refund and Relief Act of 1999. In the Senate, only 
Republicans voted for that bill. That bill included a provision to do 
what I would advocate we ought to do right now: repeal the alternative 
minimum tax. If President Clinton had not vetoed that bill, we would 
not be here today. But we are here today with a worse problem.
  Later, in 1999, an extenders bill, including the fix, to fix it good 
through 2001, was enacted to hold the AMT back for a little longer; in 
other words, not hitting more middle-income people.
  In 2001, we departed from these temporary piecemeal solutions a 
little bit--at least a little bit--for 4 years with the Economic Growth 
and Tax Relief Reconciliation Act of 2001. That 2001 bill permanently 
allows the child tax credit, the adoption tax credit, and the 
individual retirement account contribution credit to be claimed against 
a taxpayer's alternative minimum tax. While this certainly was not a 
complete solution, it was a step in the right direction.
  More importantly, the 2001 bill was a bipartisan effort to stop the 
further intrusion of the alternative minimum tax into the middle class. 
The package Senator Baucus and I put together that year effectively 
prevented inflation from pulling anybody else into the alternative 
minimum tax through the end of 2005.
  Mr. President, I ask unanimous consent for 3 more minutes.
  The ACTING PRESIDENT pro tempore. Without objection, it is so 
ordered.
  Mr. GRASSLEY. Our friends in the House originally wanted to enact a 
hold harmless only through the end of 2001, while Senator Baucus and I 
were trying to do it through 2005. We got the final bill the way 
Senator Baucus and I wanted it. So it was not a problem then until the 
year 2005.
  Since the 2001 tax relief bill, the Finance Committee has produced 
bipartisan packages to continue to increase exemption amounts to keep 
taxpayers ahead of inflation, with the most recent being the Tax 
Increase Prevention and Reconciliation Act of 2005, which increased the 
AMT exemption to $62,550 for joint returns and $42,500 for individuals 
through the end of 2006.
  These packages put together since 2001 are unique in that they are 
the first sustained attempt undertaken by Congress to stem the spread 
of the AMT through inflation and hitting more middle-income taxpayers. 
Admittedly, these are all short-term fixes, but they illustrate a 
comprehension of the AMT inflation problem and what needs to be done to 
solve it.
  So this leads us to the present day and the situation we currently 
face. In 2004, the most recent year for which the IRS has complete tax 
data, more than 3 million families and individuals were hit by the AMT. 
And those figures for each State are shown on this chart behind me. You 
can see a breakdown by State of families and individuals who paid the 
alternative minimum tax, even with our hold-harmless provisions in 
place.
  This does not even begin to hint at what will happen if we do not 
continue to protect taxpayers from the alternative minimum tax. Barring 
an extension in the hold harmless contained in the 2006 tax bill, AMT 
exemptions will return to their pre-2001 levels. At the end of 2006, 
provisions allowing nonrefundable personal tax credits to offset AMT 
tax liability expired. If further action is not taken, it is estimated 
that the AMT could claim 35 million families and individuals by the end 
of this decade. That is just 3 years away. Think of it: a tax 
originally conceived to counter the actions of 155 taxpayers in 1969 
could hit 35 million filers by the year 2010--a well-intentioned idea 
40 years later with unintended consequences. Some analyses show that in 
the next decade, it may be less costly to repeal the regular income tax 
than the alternative minimum tax.
  Aside from considering the increased financial burden the AMT puts on 
families, we also should consider the opportunity cost. Because the 
average taxpayer spends about 63 hours annually complying with the 
requirements of the alternative minimum tax, that is an awful lot of 
time that could be more productively used elsewhere.
  As I have illustrated, the AMT is a problem that has been developing 
for a while. Thirty-eight years down the road are we now. On numerous 
occasions, Congress has made adjustments to the exemptions and rates, 
though not as part of a sustained effort to keep the alternative 
minimum tax from further absorbing our Nation's middle class.
  Despite these temporary measures, the AMT is still a very real threat 
to millions of middle-income taxpayers who were never supposed to be 
subjected to a minimum tax. That the alternative minimum tax has grown 
grossly beyond its original purpose--which was to ensure the wealthy 
were not exempt from an income tax--is indisputable and that the AMT is 
inherently flawed would seem to be common sense.
  Despite a widespread sense that something needs to be done, there is 
still disagreement on what needs to be done. Over the course of a few 
more remarks on this floor, in days to come, I will address some of 
those things we ought to do. But this is a case where well-intended 
legislation not being paid attention to has turned out to be a major 
tax problem in this country.
  Mr. President, I yield the floor.
  The ACTING PRESIDENT pro tempore. The Senator from North Dakota is 
recognized under the consent for 20 minutes.

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