Tax Relief Extension Reconciliation Act of 2005

TAX RELIEF EXTENSION RECONCILIATION ACT OF 2005 -- (Senate - February 01, 2006)

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Mr. SCHUMER. Thank you, Mr. President. I thank our leader on the Democratic side on this committee for his leadership on this issue and so many others. I thank also my colleague from Iowa, the chairman of the committee, who always tries to work things in a bipartisan way. In fact, on this issue which I will be speaking about, the alternative minimum tax, we have tried in the Senate to work in a bipartisan way on a proposal that passed earlier.

I rise in support of two amendments that I have filed with my colleague from New Jersey, Senator Menendez, on the important issue of the alternative minimum tax.

It is unclear right now when the majority will let us bring up either of these amendments for a vote. But the issue is an extremely important one. It cannot be swept under the rug. I want to alert my colleagues to what we will do.

AMT relief is a critical part of the Senate's version of this bill, and we all must do everything we can to ensure that this tax--which affects middle-class and upper-middle-class taxpayers, above all--is addressed this year.

In fact, this body will have a choice: whether we take the money we can use for tax cuts and give it to the person who is in the middle class or slightly above middle class or give it to people whose income is above $1 million. That is the choice that faces us.

Our first amendment would substitute the Senate-passed AMT relief for the 2-year extension of the tax cuts on dividends and capital gains which were signed into law in 2003 but do not expire until the end of 2008. The amendment contains the necessary offsets so that the overall bill stays within the parameters in the budget resolution.

The second amendment is a sense of the Senate. Senator Menendez and I will be joined, I believe, by Senators Feinstein and Kerry on that one as well. It simply states that providing relief from the alternative minimum tax should be a higher priority for the Congress than providing a tax cut on dividends and capital gains in 2009.

It is simple, straightforward, and, in my view, should hardly be controversial because whatever your views are on the preference of which tax, the alternative minimum tax will go up this coming fiscal year; whereas, the dividends and capital gains do not expire until 2009.

Now, it would be nearly impossible to overstate the AMT issue in its importance and its urgency. The individual alternative minimum tax was enacted in 1969 as a supplemental tax on wealthy tax evaders, but, unfortunately, as incomes have risen, it has evolved into a tax on millions of middle-class working families, particularly families in which both parents work and families with two or more children--hardly people we would want to penalize.

Some people say it has evolved from a ``class tax'' into a ``mass tax.'' Other people say it has evolved from a ``wealth tax'' into a ``stealth tax.'' But whatever you call it, it is something that catches unsuspecting middle-class families by surprise. And starting next year, it will explode in significance if Congress fails to act.

In fact, by the end of the decade, the AMT will ensnare more than 30 million taxpayers, the majority of whom will have incomes below $100,000. The National Taxpayer Advocate at the IRS has identified the alternative minimum tax as the most serious problem facing individual taxpayers.

There is an important point I want to make for my colleagues. The AMT is often portrayed as a tax that is most problematic for residents of so-called blue States, such as New York, California, Massachusetts, New Jersey. It certainly affects my State. But that

is not the truth, the whole truth, that it just affects ``blue'' States. There are a whole lot of ``red'' States or ``purple'' States that have a significant percentage of taxpayers affected by the AMT, including States of colleagues from across the aisle: Oregon, Virginia, Minnesota, Ohio, Maine, Georgia, North Carolina, and Pennsylvania. So this problem is not a ``red'' State or ``blue'' State issue or a partisan issue. It is simply an issue of national importance.

Here are a few statistics I want to mention to my colleagues. They are quite astounding. The year 2006 is the ``tipping point'' for the AMT. The number of taxpayers affected will explode from 3.6 million to more than 19 million, if the Congress fails to act. A family with two children will become subject to the AMT at about $67,500 of income in 2006. That is hardly anybody who is wealthy. People with that income often struggle. I know many of them myself. And a family with five children will start owing in the AMT at about $54,000 of income this year, if Congress does not act.

In 2004, only 6.2 percent of families earning between $100,000 and $200,000 a year were subject to the AMT. It will explode to 50 percent this year. Half of all people making above $100,000 but below $200,000 will be affected. They are hardly rich.

And starting in 2008, the average married couple with two children earning $75,000 will find that more than half of the tax cuts they have been expecting from the laws passed since George Bush became President will be taken back via the AMT, if Congress fails to act.

There are two main reasons why the AMT relief should be a high priority for the Congress rather than extending the cuts on dividends and capital gains. The first has to do with fairness, the second with timing.

If the AMT relief is extended through 2006, about two-thirds of the benefits will be realized by families earning under $200,000. It affects people whose income is between $50,000 and $200,000--not the poorest people in our society but people who get clobbered by taxes, by large expenses, and who do not simply have the necessary income.

More than half of the total benefits will go to families with incomes between $100,000 and $200,000. In New York, and many other States, particularly in or near major cities, a combined income of $100,000 or $150,000 does not make you rich.

Contrast this with the tax relief for dividends and capital gains, where more than half of the total benefit goes to families with over $1 million in income. This is more than 50 percent of the benefit going to less than one-half of 1 percent of all the taxpayers in the country. So we are faced with a choice here. This is not our classic tax cuts versus spending. This is, rather, tax cuts for the very wealthy versus tax cuts for the middle- and upper-middle-income range.

Now, some Members say some people do not like it when we point out these lopsided statistics. They say it is ``class warfare.'' This is not class warfare. This is just the obvious truth of prioritizing tax cuts. And a dividend and capital gains cut put ahead of AMT relief hurts the hard-working middle class. No amount of rhetoric can change that.

I want my colleagues to think about what it means for the AMT to start hitting families with children making $75,000 or $100,000. These are the same families facing higher health care costs, higher tuition costs, higher energy costs. And they will soon start to lose their tax cuts to the AMT.

A police officer and a schoolteacher in my city of New York will almost certainly be pushed into the AMT, if they have not been already. A Georgia family, maybe a marine biologist at the new Atlanta aquarium and her insurance broker husband, will pay the AMT, if we do nothing. A computer programmer in Virginia, married to a firefighter; or a professor in Oregon, married to a vintner that makes some of the State's great pinot noir; or two factory workers in Ohio--all these families would be subject to the AMT if we fail to act.

There is something else these families likely have in common; and that is, the dividends and the capital gains cuts passed in 2003 helped them very little, if at all. The reason for this is most middle-class families who own stocks, bonds, or mutual funds have them in either a retirement plan or a savings plan for their kid's education. That is where my family's savings go right now.

These middle-class families probably own very little in terms of taxable investments. Their savings are already growing tax free. So they get very little benefit from the lower rates on dividends and capital gains. That is why these tax cuts benefit the very wealthy. It is because most of the stocks and bonds owned by the middle class--and that is a lot--but they are shielded from tax already.

I know my friends on the other side of the aisle talk about the so-called investor class and point out, correctly, how, for the first time, more than half of all Americans own stock. Senator Kyl made this point a moment ago. But the truth is, most middle-class families own very little in the way of taxable investments. More than three-quarters of Americans earn less than $1,000 a year in taxable income from dividends and capital gains.

Let me repeat this because it may be a surprise to some. More than three-quarters of American families earn less than $1,000 in taxable income from dividends and capital gains.

So in terms of priorities, in terms of whom it affects, we should prefer the AMT, whatever we feel about dividends and capital gains cuts. And I am not averse to those cuts in a nonbudget-deficit situation.

How about timing? This is even more obvious. Consider the statistics I mentioned and who will become subject to the AMT this year if we fail to act. Now consider when each tax takes effect, when

it bites. Capital gains, dividends, not until 2009. AMT, immediately, in the next fiscal year. Many of my colleagues on the other side of the aisle make the argument we need to extend the relief now since the market is counting on it. They say it is ``built'' into the market, and the stock market will decline if we do not extend those cuts today. That is simply not true.

If there's one thing I know about investing--and a lot of people in my State make a living at it--it's this: People who are really affected by these rates who buy and sell significant amounts of stocks and bonds are sophisticated investors, and they follow politics. They know that Congress changes tax laws all the time. It is hard to believe people are investing their money today based on what the tax rate might be years from now when they finally sell that investment. Smart businesspeople, smart investors make their investment decisions based on market factors, not on what Congress might or might not do, particularly in this type of situation where it is simply this year or next year.

And, of course, there is the obvious argument that if making all of these tax laws consistent and permanent was so important, then the leadership on the other side should not have pushed for reconciliation protection in the first place. They should have compromised back in 2001 and 2003 and passed less ideological legislation within the Senate's normal rules of procedure.

In conclusion, Mr. President, the Senate was right the first time. After some initial debate in the Finance Committee, we passed out a bipartisan bill that excluded the dividends and capital gains cuts and provided generous AMT relief for 2006 that will keep nearly 8 million families out of the AMT this year. That bill passed the Senate with 64 votes, and I encourage Chairman Grassley to bring a similar bipartisan bill back from conference.

I yield the floor.

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