CREATING LONG-TERM ENERGY ALTERNATIVES FOR THE NATION ACT OF 2007 -- (Senate - June 13, 2007)
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ALTERNATIVE MINIMUM TAX
Mr. GRASSLEY. Mr. President, once again, as a leader of our party on the Finance Committee, I come to the floor to discuss one of the important tax issues that must come before Congress. That is the alternative minimum tax. I am sure many have noticed that the alternative minimum tax is frequently the subject of my many speeches. They may be wondering how long I intend to keep talking about it. The simple answer is I intend to keep talking about it--meaning the alternative minimum tax--until this Congress actually takes some action. Instead of taking action, this Congress has done absolutely nothing. The problem continues to get worse for millions of Americans who will be caught by the alternative minimum tax and are now being caught. It is this ``now being caught'' that I wish to emphasize, because when I speak about those now being caught by this alternative minimum tax, I am referring to those families who make estimated tax payments and who will be making their second payment for this quarter this Friday.
Last year, 2006, 4 million families were hit by the alternative minimum tax. This was 4 million too many. Of course, it is considerably better than what we know for the year we are in right now, when 23 million Americans, mostly middle class, will be hit by the alternative minimum tax. The reason we are experiencing this large increase this year is that in each of the last 6 years, Congress has passed legislation that temporarily increased the amount of income exempt from the alternative minimum tax. These temporary exemption increases have prevented millions of middle-class Americans from falling prey to the alternative minimum tax until now. While I have always fought for these temporary exemptions, I believe the alternative minimum tax ought to be permanently repealed because it was never meant to hit the middle class--and it is hitting the middle class--and because the class of people it was intended to hit, the superwealthy, are finding ways of getting around what was thought to be a bright-light idea in 1969. It is hitting maybe a few hundred people, finding that superrich class not even paying the tax. So it isn't serving the purpose it was intended to serve, and it will hit middle-class Americans who were never intended to be hit by it by 23 million this year.
One reason I have previously given for permanent repeal is it may be difficult for Congress to revisit the alternative minimum tax on a temporary basis every year, as we have for each of the last 6 years. From January 1 of this year until now, when the second quarterly payment is going to be made, proves me right, because nothing has been done. So the new Congress has yet to undertake any meaningful action on the alternative minimum tax. Several proposals have been tossed around by the other body, meaning the House of Representatives. I have discussed a few of them in my earlier speeches. I generally find these proposals lacking but completely agree with my colleagues that something needs to be done, at least I seem to agree. Despite assurances that the alternative minimum relief is an important issue, nothing has actually been put forward as a serious legislative solution.
This chart I am going to put up reflects how the alternative minimum tax has been handled by this Congress so far. It is kind of a smoke-and-mirrors example that I use because we have had numerous proposals talked about, but that is all, just talk. An academic discussion is not in any way a serious substitute for real action this Congress ought to take, as tomorrow people making their quarterly payments will attest to.
I have also come to realize the best way to learn about new proposals that deal with the alternative minimum tax is not to check for the new legislation in the Congressional Record but to check the daily newspaper. In the course of reading the Washington Post last Friday, I came across another trial balloon--I emphasize ``trial balloon''--for a new idea about the alternative minimum tax that was printed in the business section of the newspaper. A lot of people were out of town on Friday, so I ask unanimous consent that the article entitled ``Democrats Seek Formula to Blunt Alternative Minimum Tax'' be printed in the Record.
There being no objection, the material was ordered to be printed in the RECORD, as follows:
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Mr. GRASSLEY. The concept underlying the alternative minimum tax fixes highlighted in this article in the Washington Post is that the alternative minimum tax could be abolished for families and individuals making less than a given amount, and that the resulting revenue loss would then be offset by a surtax--I want to emphasize: creating a new tax, a surtax--on what the article refers to as our ``nation's wealthiest households.''
Now, when they use the term the ``nation's wealthiest households,'' remember that was the whole concept of the alternative minimum tax in the first place, in 1969, to tax a few thousand people with this tax, and now they are not even being hit by it.
I will bet you, you could have this surtax, and you are still going to find people who can hire the best lawyers to avoid paying that tax. When I say ``avoid paying that tax,'' I mean avoid paying that tax in a legal way, not in a way that is extralegal.
There are two basic proposals that have been laid out in that Washington Post article. One of them, put forward by a member of the Ways and Means Committee of the other body, would use a 4.3 percent surtax on income over $500,000 to offset the elimination of the alternative minimum tax for people earning less than $250,000 a year.
Now, it is estimated in the article that the surtax of 4.3 percent would affect about 1 million families. It is also suggested the alternative minimum tax bills would be decreased for families earning between $250,000 and $500,000 yearly as part of this option. Now, I am not sure how individuals would be treated in this plan.
Interestingly, immediately after the insistence that this option enjoys a great deal of support, the article notes that details of the plan have yet to be released. In the tax world, the devil, of course, is in the details. So I am curious as to exactly what it is that is enjoying this broad political support.
I will note that Ways and Means members have now denounced--now denounced--this label they have applied to this 4.3 percent tax. They have denied the ``surtax'' label.
So, Mr. President, I ask unanimous consent to prove what I said, that an article from Tax Notes Today be printed in the Record. That is a publication dated June 13, 2007.
There being no objection, the material was ordered to be printed in the RECORD, as follows:
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Mr. GRASSLEY. Now, the other plan comes from our friends at the Tax Policy Center. In a similar plan to the one I just discussed, a 4-percent surtax would be charged to individuals with adjusted gross incomes above $100,000 and couples with incomes above $200,000. The surtax would apply to income above those thresholds, and the thresholds would be indexed for inflation after the year 2007. Under this option, the alternative minimum tax would be completely repealed.
To give an idea of how many people would be hit by this surtax, according to IRS statistics of income, in the year 2004--the latest year we have information available for--there were 1,427,197 returns filed by singles reporting adjusted gross incomes of at least $100,000. In the same year, married persons filing jointly numbered 2,569,288 returns reporting adjusted gross incomes above $200,000.
Mr. President, 2004 is the most recent year we have for this data. I realize the proposal hits singles with incomes greater then $100,000 and my numbers would include someone with an income exactly at that amount, but we can see the Tax Policy Center's plan would impact roughly 4 million singles and joint filers. It would likely impact more than that, since my numbers do not include heads of households or other categories, but you get the idea, I hope, that a lot of people would still be impacted.
Now, as I said before, I am glad people are thinking about the alternative minimum tax and realize it is a very real problem out there and, specifically, this year, for 23 million middle-income-tax people who would not otherwise be hit. But as I have discussed more and more of these proposals with you, I have started to see them--as my chart indicates--as more smoke and mirrors than actual, real legislative proposals.
For one thing, legislation is not introduced in a newspaper--even from the prestigious Washington Post. I keep hearing about proposal after proposal, but nothing is actually done. Everyone seems to agree something needs to be done and needs to be done quickly, but the discussion does not go further from that point.
I spoke about the alternative minimum tax at the beginning of this Congress, in January and when the first quarterly payment was due. I am here now that the second quarterly payment is due. I bet I will be here when the third quarterly payment comes due, saying largely the same thing I am saying right now.
Aside from the fact that Congress does not seem to be under any pressure to actually take action, all of the proposals I have discussed here share the same major flaw in that they seek to offset any revenues not collected through reform or repeal of the alternative minimum tax. Notice I said ``not collected.'' And I did not use the word ``lost.'' This distinction is important for the simple reason that the revenues we do not collect as a result of alternative minimum tax relief are not lost because the alternative minimum tax collects revenues that were never supposed to be collected in the first place.
Let me emphasize that. We cannot talk about lost revenue because we are talking about 23 million people being hit by the alternative minimum tax who were never supposed to be hit by the tax in the first place. The alternative minimum tax collects revenues it was never supposed to collect in the first place. Originally conceived as a mechanism to ensure high-income taxpayers were not able to completely eliminate their tax liability, the alternative minimum tax has failed.
In 2004, IRS Commissioner Everson told the Finance Committee the same percentage of taxpayers continues to pay no Federal income tax. So the alternative minimum tax is not even working for those who were supposed to pay it. This was originally created in that first year with just 155 taxpayers in mind. Of the two plans I discussed earlier, the one that would impact the lower number of filers would still hit about 1 million families. See how 155 has grown to 1 million families?
Finally, if we offset revenues not collected as a result of alternative minimum tax repeal or reform, total Federal revenues are projected to push through the 30-year historical average and then keep going.
This chart I have in the Chamber, which is reproduced from the nonpartisan--I want to emphasize ``nonpartisan''--Congressional Budget Office's publication called ``The Long-Term Budget Outlook,'' issued in December 2005, illustrates--as you can see by the red mark--the ballooning of Federal revenues.
The alternative minimum tax is a completely failed policy that is projected to bring in future revenues it was never designed to collect--and 23 million people being hit this year by it. A large share of that 23 million people being hit by it now in the second quarterly estimate they are filing is absolute proof of people being hurt by a tax that was never supposed to hit them in the first place.
Of course, the best solution to this mess would be S. 55, and that is called the Individual Alternative Minimum Tax Repeal Act of 2007. It is a bipartisan bill introduced by Senator Baucus, the chairman of the Finance Committee, and this Senator, along with Senators Crapo, Kyl, and Schumer. Senators Lautenberg, Roberts, and Smith have also later signed on as cosponsors.
While permanent repeal without offsetting is the best option, we absolutely must do something to protect taxpayers immediately, even if it involves a temporary solution such as an increase in the exemption amount. Of course, if we do not do that, we are going to be in the same fix next year, and I will be making the same points at that particular time.
This Friday, taxpayers making quarterly payments are going to once again discover the alternative minimum tax is neither the subject of an academic seminar nor a future problem we can put off dealing with. It is the real world for those taxpayers filing Friday. They are being hit by it. The alternative minimum tax is a real problem right now, and if this Congress is serious about tax fairness, we need to stand up and take action on the alternative minimum tax.
Mr. President, I yield the floor.