[Congressional Record (Bound Edition), Volume 157 (2011), Part 7]
[Senate]
[Pages 9069-9071]
[From the U.S. Government Publishing Office, www.gpo.gov]




                               TAX REFORM

  Mr. WYDEN. Madam President, Senator Coats and I have introduced 
bipartisan tax reform legislation. It is the first comprehensive 
overhaul of tax reform law in 25 years, since 1986, when then-President 
Reagan and Democrats got together and worked on a bipartisan reform 
that cleaned out scores of special interest tax breaks in order to hold 
down rates for all Americans and keep progressivity.
  Senator Coats and I have worked also with Senator Gregg. I had that 
good fortune for a number of years, and have picked up on some of what 
was done in 1986 by President Reagan and a large group of Democrats. He 
and I intend, in the days ahead, to come to the floor of the Senate and 
talk about some of the most offensive aspects of our totally 
dysfunctional tax system.
  Today, we thought we would begin by discussing the alternative 
minimum tax. It seems to be pretty much the poster child for what is 
broken about the American tax system. It was enacted in 1969, after the 
Congress learned that 3 years earlier 155 wealthy taxpayers had paid no 
tax at all. The alternative minimum tax was designed to hit what 
amounted to a small group of tax evaders and not the millions of 
middle-class taxpayers who get shellacked by the AMT every single 
springtime. The problem has been that Congress has never indexed the 
AMT brackets for inflation.
  While the regular tax bracket standard deductions and exemptions do 
get adjusted for inflation, the brackets and exemptions of the 
alternative minimum tax do not. As a result, millions of middle-class 
taxpayers, whose only fault is their incomes grew with the economy, now 
slip into this nefarious alternative minimum tax zone each year.
  I would be interested, for purposes of starting this colloquy, to get 
the reaction of my friend and partner on it. We are going to bring up a 
number of these aspects of the tax system that cry out for overall 
reform. But I wonder what my friend's sense is about starting today 
with the alternative minimum tax, and how important it is that reform 
is done there for middle-class folks in Indiana and around the country.
  Mr. COATS. Madam President, I want to thank my colleague from Oregon, 
Senator Wyden, for working with me, and particularly working with 
Senator Gregg who is now retired from this Chamber. They spent an 
extraordinary amount of time, very productive but very time consuming, 
trying to put together a comprehensive tax reform, which, as Senator 
Wyden has said, has been 25 years since we have tackled the Tax Code to 
try to simplify it and try to take out egregious provisions that were 
put in it over the years that may benefit a special few but don't begin 
to address the average middle-income taxpayer who is bearing a very 
substantial burden of taxes paid in this country.
  Probably the most egregious provision and, as Senator Wyden said, the 
poster child for the current dysfunction of the Tax Code and our tax 
system is the alternative minimum tax.
  Senator Wyden and Senator Gregg's program that they put together--and 
Senator Gregg urged me as I was coming into the Senate and he was 
leaving to work with Senator Wyden in terms of working to keep this 
bipartisan effort going forward, and I have had the pleasure of doing 
so. We do have a comprehensive bill that we wish to debate and share 
with our colleagues. But we also want to point out the reason why tax 
reform is so necessary.
  A Tax Code that now comprises more than 70,000 pages with more than 
10,000 special exemptions and preferences is certainly something that 
is way beyond our Founders' intention or any intention of taxation of 
the American people. This complexity is literally driving everybody 
nuts, including the tax accountants and CPAs and those who have to deal 
with it every year but, more importantly, the tax filers, American 
citizens, who each year start getting the sweats along about mid-March 
in terms of how they are going to get their tax return done. If they 
try to do it themselves, they ought to be able to; and, if passed, 
Wyden-Coats would give them the simplicity of reduced rates, easy 
filing for information, and the ability to do their taxes at home.
  We spend an extraordinary amount of money--I think it is Americans 
spend nearly 6 billion hours a year--to have tax preparers do their tax 
returns. The alternative minimum tax is particularly egregious, as 
Senator Wyden has said. It is grossly unfair. It hammers working 
Americans.
  The temporary fix Congress has added in subsequent years from its 
initiation now protects individuals with incomes up to $48,000-plus and 
couples up to $74,000-plus. But taxpayers who earn more than that get 
whacked by the AMT, the alternative minimum tax, and the problem just 
gets worse.

[[Page 9070]]

  As Senator Wyden has said, it started with a few taxpayers in the 
high income brackets trying to evade paying any tax. That is how that 
came into play. But in 1997, several years later from the initiation, 
the AMT has hit 1 percent of all taxpayers. Next year, after this 
current fix expires, it will hurt more than 20 percent of taxpayers. To 
be exact, that is 34 million hard-working Americans. It is a poor fix 
that is currently in place on a temporary basis.
  In my State of Indiana, 42,700 taxpayers had to pay AMT taxes in 
2008, and without another extension of the patch or the fix, that will 
rise to 372,000 in 2012.
  If you are a family with a number of children and you live in a high 
tax State or a local tax State, you are thrown into the alternative 
minimum tax computation. That means a double process by which you or 
your preparer has to file your taxes, and it means higher taxes never 
intended to hit the working class.
  So in continuing this, I wish to reaffirm my thanks to the Senator 
from Oregon for allowing me to be part of this effort, and we look 
forward to many opportunities to discuss some of the more egregious 
portions of the Tax Code and reasons why we need to continue to work 
for comprehensive reform.
  I would ask my colleague if he would delve a little more deeply into 
this in this colloquy we currently are entertaining.
  Mr. WYDEN. Madam President, I hope that folks paying attention to 
this tax reform debate pick up on what Senator Coats has just 
described. When the alternative minimum tax was first debated, the 
country was talking about 155 people. These were the so-called wealthy 
folks. They were paying no taxes at all. What Senator Coats has just 
described is, next year, what started as a program to try to make sure 
that 155 people didn't end up getting a sweetheart deal, now we are 
going to see 34 million people crushed by this inequitable kind of tax, 
a kind of bureaucratic water torture.
  We have about the same numbers in Oregon that Senator Coats has in 
Indiana. In 2008, 44,000 Oregon taxpayers had to pay the alternative 
minimum tax. Without some kind of extension or, as Senator Coats and I 
essentially want to do, abolishment of the alternative minimum tax, 
that is going to rise to close to 400,000 next year. The people who are 
getting hammered by this alternative minimum tax certainly don't fit 
that small class of the so-called freeloading wealthy folks who are 
figuring out ways to pay nothing.
  For example, a woman earns $65,000 in 2010, say she manages a health 
club, she has three kids, she has to file her taxes independent of her 
husband because they are in the middle of a divorce. As someone who is 
married, filing separately, she would have been hit by the AMT in 2010, 
according to the American Institute of Certified Public Accountants. 
Think about that, a woman who manages a health club making $65,000, 
with three kids, filling out her taxes and going through the 
unbelievable headaches, being singled out under the alternative minimum 
tax.
  I ask my friend from Indiana--and I am sure he has very similar 
people in Indiana--is that the kind of person the alternative minimum 
tax was designed to scoop up back in 1969?
  Mr. COATS. Absolutely not, I would say to the Senator from Oregon. 
Clearly, if you go back to the origin of the alternative minimum tax, 
it was designed to go after those handful, in comparison to the total 
number of taxpayers in this country, who have found creative ways of 
not paying any taxes whatsoever. Wealthy taxpayers have simply been 
able to manipulate the Tax Code legally but in a way that allowed them 
to avoid paying taxes altogether. That is how all of this started.
  What has happened is that we are now in a situation where it is 
grossly unfair to the majority of taxpayers in this country simply 
because they fall into categories that throw them into having the AMT 
calculated in their tax returns. It is costing them a lot of money. It 
was never intended to address the middle-class taxpayer, and it has 
grown exponentially since it started.
  Mr. WYDEN. Would the Senator agree that the difficulty of projecting 
the AMT tax liability makes it tough for taxpayers to compute their 
estimated tax payments and creates a situation in which, just because 
of its complexity, they can get hit with penalties?
  I think the reason Oregonians are concerned about this--we have heard 
about it in the Senate Finance Committee--is that the AMT is 
essentially a separate tax system with its own tax rates and deduction 
rules which are less generous than regular rates and regular rules. 
This contributes to the tax-filing nightmare. The only way you can tell 
if you owe the alternative minimum tax is by filling out the forms or 
by being audited by the Internal Revenue Service. If it turns out you 
should have paid the alternative minimum tax and didn't, you owe back 
taxes plus any penalties or interests the IRS wants to dole out.
  My question is, I ask my good friend, how in the world is a typical 
taxpayer going to be able to make sense out of something like that 
which lots of accountants tell me they cannot even sort through?
  Mr. COATS. The Senator from Oregon is exactly right. I took three tax 
courses in law school. I cannot do my taxes with any assurance that I 
am doing it right because this code has become so incredibly 
complicated. The alternative minimum tax adds an additional set of 
calculations that make it even more complicated.
  Today, 80 percent of the tax filers have to get help to file their 
taxes, 20 percent of those buy software and hook it into their computer 
and try to work through it that way, and 60 percent take it to a 
professional. If you are not working as a professional in a career as a 
CPA or a tax return specialist, you cannot keep up with the 70,000 
pages and 10,000-plus exemptions and the complexity of filing a return. 
It should not in any sense of the matter be a tax collection system 
that requires 80 percent of our taxpayers to have to seek professional 
help at a significant cost. As I think I indicated earlier, $6 billion 
a year is spent on transferring money from the person paying the taxes 
to someone just to prepare their returns.
  Small businesses face a similar problem. Small businesses do not have 
the big back room with the hired accountants and others to handle all 
the paperwork. Small business men and women have to be out front 
selling the product and have to be talking to the customer. Yet they 
now also are caught up in this web of complexity in terms of how to 
file their taxes, and they are having to expend time and money on 
getting their tax returns filed and making sure they are filed right.
  Over time, as the deficit and debt problem has increased 
significantly, Members have been all the more reluctant to eliminate 
this on a single stand-alone basis because of the impact it would have 
on our ballooning deficit. But on comprehensive tax reform, if we can 
put this together with a package of comprehensive reforms, we can do it 
in a revenue-neutral basis so it does not have an adverse impact on the 
economy.
  Again, I commend Senator Wyden and Senator Gregg for putting together 
a package that does just that, and I ask my colleague if he wants to 
elaborate on that a little bit. I thank him for the opportunity to come 
down to discuss for the first if not the last time some of the 
egregious aspects of the Tax Code in this country that I think will 
dictate how we should move forward and why we should move forward in 
enacting comprehensive tax reform.
  I thank the Senator.
  Mr. WYDEN. The distinguished majority leader is here. I think we are 
about to wrap up. I am certainly happy to yield to him if he needs a 
few minutes to do the business of the Senate, and then Senator Coats 
and I will wrap up.
  Mr. REID. Madam President, it is my understanding that the hour of 5 
o'clock has arrived.
  The ACTING PRESIDENT pro tempore. The majority leader is recognized. 
The Senator is correct.

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