Congressional Budget for the United States Government for Fiscal Year 2008

CONGRESSIONAL BUDGET FOR THE UNITED STATES GOVERNMENT FOR FISCAL YEAR 2008 -- (Senate - March 22, 2007)

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Mr. GRASSLEY. Mr. President, the Senate just voted on an amendment that makes a good first step to putting kids first in SCHIP. However, it is all well and good to say we are putting kids first. But the amendment we just voted on is not worth the paper it is printed on if the Senate does not take the next step and back up these words with policy.

The Cornyn amendment represents actual kids-first policy. I ask Senators to support the needed next step to putting kids first. Support the Cornyn amendment.

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Mr. GRASSLEY. Madam President, lately we have heard a lot about the alternative minimum tax. It is a problem around here we have talked about and not done much about over a long period of time, whether Republicans have controlled this body or Democrats have controlled this body. Most often, we talk about the difficulties of really fixing the alternative minimum tax. Obviously, then, it is not a new problem. It has been with us for several decades.

The individual minimum tax, the precursor to the alternative minimum tax, as we call it now, dates from 1969. Congress then discovered, somehow, 155 taxpayers with incomes greater than $200,000 a year were not paying any taxes because they could legally avoid those taxes. So it was calculated that everybody ought to be paying a little minimum tax, and that is where the alternative minimum tax comes from. At that particular time, it was affecting about one taxpayer in half a million. Now, clearly, the situation has changed in the last 38 years.

Although not its only flaw, the alternative minimum tax's most significant defect is it is not indexed for inflation. This failure to index the exemption and rate brackets--the parameters of the alternative minimum tax system--is also a bipartisan problem. Though $200,000 was not an incredible amount of money in 1969, the situation is different today. I am not saying $200,000 is not a lot of money today, because it is, but $200,000 today will not buy what it would buy in 1969.

In 2004--the most recent year for which the Internal Revenue Service has complete tax data--instead of having 155 people paying this tax, more than 3 million families and individuals were hit by the alternative minimum tax. This chart I have in the Chamber has the numbers for every State in the Union. I am not going to go down those numbers now because we do not have time. But you can see, State by State by State, there are tens of thousands of people paying the alternative minimum tax who were never intended to pay it, even though we have taken some action in recent years so yet more people are not paying the alternative minimum tax.

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 of the hold harmless contained in the 2006 tax bill, the alternative minimum tax 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 the alternative minimum tax will claim 35 million families and individuals by the end of this decade.

Now, think of that: A tax originally conceived to counter the actions of just 155 taxpayers could hit 35 million filers in just a few years, and I am talking about just around the corner. Some analyses show that in the next decade, it may be less costly to repeal the regular income tax than it would be to repeal the alternative minimum tax.

The AMT is a problem that has been developing for almost 40 years. On numerous occasions, Congress has made adjustments to the exemptions and the rates, though not as part of a sustained effort to keep the AMT from further absorbing our Nation's middle class until 2001. We did repeal it in 1998, but President Clinton vetoed it. We never, then, were able to get it repealed. So I am arguing for repeal.

Despite the temporary measures we have taken, the alternative minimum tax is still a very real threat to millions of taxpayers who were never supposed to be subject to the minimum tax. That the AMT 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 widespread agreement that something needs to be done about the AMT, agreement on what exactly to do is not very widespread. A major factor in the disagreement relates to the massive amount of money the AMT is supposed to be bringing into the Federal Government over the next few years--but remember, supposed to be bringing in from taxpayers who were never supposed to pay it in the first place. In 2004, AMT filers paid more than $12.8 billion into the Treasury.

If we do not extend the most recent AMT hold-harmless provisions that expired at the end of 2006, that number is projected to balloon to a much greater amount, and long-term budget forecasts currently show this greater amount coming into the Treasury.

When forecasters put their projections together, they are working under the assumption that the hold harmless which was extended in last year's tax bill will not be extended, that we will not take care of this problem. So they are guessing there is a whole bunch of revenue coming in from people who were never intended to pay it in the first place. Because of this, budget planners make the assumption that revenues will be much higher than everyone who is frustrated with the AMT thinks they ought to be. The reason for this is that the AMT ``balloons'' the revenue base, as it is projected to increase revenues as a percentage of gross national product. There is a great deal of evidence to support this.

Now, the nonpartisan Congressional Budget Office has consistently forecast the ballooning of AMT revenues year after year. This chart I have in the Chamber shows that with the red line. It takes into consideration that we are going to bring revenue in from people who were never supposed to pay it in the first place.

I just want to note that although the Tax Increase Prevention and Reconciliation Act of 2005 was signed into law after this analysis was published, the 2006 tax bill extended the AMT hold harmless only through December 31 of last year, and this chart shows Federal revenues all the way to the year 2050. It is important to note the long-term effects of the AMT on the revenue base because that is what is at issue: the basic idea that we are going to receive a lot of revenue from middle-income taxpayers who were never intended to pay it--which is part of that red line we have to get rid of because why tax people if they were not supposed to be taxed? The law is corrected from time to time to keep it from happening.

There may be some doubters who hesitate to attribute this ballooning of revenues to the AMT. But this next chart illustrates the drastic expansion of the AMT under current law over the next 43 years.

The Congressional Budget Office's report also states:

[B]y 2050, roughly 15 percent of individual income tax liability would be generated by the AMT, compared with about 2 percent today.

This is what will happen if we do not do anything.

The problem with all of the projections showing the AMT ballooning revenues is that these projections are used to put together the budget we have before us. Now, this is not a Senator Conrad problem. This is not a Democratic problem. This is a bipartisan problem. Republican and Democratic budgeteers rely on the same source of revenue--or I should say a source of revenue the Congressional Budget Office says is going to come in from people who were never intended to pay it.

This means the central problem in dealing with the alternative minimum tax is money. There are some people who say we can only solve the AMT if we offset the revenue and it can be found elsewhere to replace the money the AMT is currently forecast to collect. But we never intended to collect it from the people who we suppose are going to pay it. Anyone who says this sees the forecasts showing revenues being pushed up as a percentage of gross domestic product and wants big government to keep them up there.

These arguments are especially ridiculous when one considers that the alternative minimum tax was never meant to collect so much revenue. It is a failed policy in many ways.

The alternative minimum tax has even failed in its objective to ensure no citizen, no matter how wealthy, was able to completely avoid the Federal income tax, because in 2004, the Commissioner of IRS, Mr. Everson, informed the Finance Committee that the same number of taxpayers, as a percentage of the tax-filing population at large, continues to pay no Federal income tax. It boils down to the fact that the class of 155 people the law was set up for in the first place, in 1969, is even finding ways out of getting hit by the alternative minimum tax, and doing it legally

because we have 2,366 taxpayers with incomes of $200,000 or more who do not use the medical and dental deduction had no income tax and no alternative minimum tax. The AMT has failed in every way except the ability to make Government bigger, or at least make it look bigger, and for those who think you ought to have an offset, to keep it big. The AMT has failed. While it may be hard for some to turn down taxpayers' money, whether we are supposed to collect it or not, no one has trouble spending the money--even the blue smoke money that is in that red line there.

It is simply unfair to expect taxpayers to pay a tax they were never intended to pay, and it is even more unfair to expect them to continue to pay for that tax once we get rid of it. The reform or repeal of the AMT should not be offset because it is money we were never supposed to collect in the first place.

The way to solve this problem is to look on the other side of the ledger, to the spending side. Budget planners need to take off their rose-colored glasses, because that never materializes, and if it does, you are going to ruin the middle class. So take off your rose-colored glasses when looking at long-term revenue projections and read the fine print.

In general, it is a good idea to spend money within your means, and this is true in this case for the Government as well. If we start trying to spend revenues we expect to collect in the future because of the alternative minimum tax, we are living beyond our means. We need to stop assuming record levels of revenue are available to be spent and recognize the alternative minimum tax is a phony revenue source.

As we consider how to deal with the alternative minimum tax, we must first remember we do not have the option of not dealing with it. The problems will only get worse every year and make any solution even more difficult. We must also be clear the revenue the AMT would not collect as a result of repeal or reform should not be offset as a condition of a repeal or reform. We shouldn't call it lost revenue because it is revenue we never had to begin with.

A few weeks ago I presented to this body a joint tax estimate of how various proposed fixes to the AMT will impact revenues expected to be collected under current law. I noted at that time that full repeal aside, each of these proposals will still allow the alternative minimum tax to bring in hundreds of billions of dollars into the Treasury. If you consider any proposal aside from full repeal, you are saying hundreds of thousands, if not millions, of taxpayers out there deserve to bear the burden of the AMT. In other words, the middle class that is so talked about on this floor of this Senate to protect, the only way they are going to be protected is the extent to which we do away with this tax.

Suppose we are able to continue enacting 1- or 2-year temporary patches, as we have done. First, this strategy assumes Congress will have the time and the inclination to spend time dealing with the alternative minimum tax every year or two. This means whatever the issue of the day might be--Iraq, unemployment, natural disasters--Congress will have to stop dealing with those other problems and return to a problem we should never have had to deal with in the first place. Is the alternative minimum tax an issue that we as a legislative body want to revisit every year? Wouldn't it be better to solve it once and for all, particularly since it is phantom revenue, taxing middle-class Americans who were never supposed to pay it in the first place? Remember, only 155 taxpayers were targeted with this tax in 1969.

Second, every time Congress attempts to enact or extend a temporary fix, the same revenue issues are going to come up. Budget projections create the illusion of forgone revenues given up because of an alternative minimum tax hold harmless. Every time a patch is considered, there is another chance for taxpayers to be subject to this stealth tax increase.

Clearly, there is only one way to fix the AMT so no taxpayer is subjected to what has become a complete policy failure. We must completely repeal the individual AMT. There is a bipartisan consensus that only complete repeal is an adequate solution to this problem. Chairman Baucus, along with this Senator, Senator Crapo, Senator Kyl, Senator Roberts, Senator Schumer of New York, and Senator Smith last month introduced the Individual Alternative Minimum Tax Repeal Act.

We must repeal the AMT and we must do it without offsetting any revenue the AMT is expected to collect in the future. I have made this point before, but it is important. The alternative minimum tax was never intended to be a significant source of revenue. It was only meant to hit a few people who could legally avoid paying the tax with the idea that everybody living in America ought to pay a little bit of income tax for the privilege of benefiting from this great economy we have. Despite this, the alternative minimum tax will balloon revenues to historically high levels if something isn't done, as my colleagues can see right there on the chart.

If we consider the AMT to be a fundamentally unfair tax, any tax that would replace it would be equally unfair. Anyone who wants equity to be a fundamental value represented in our Tax Code and who wants fair treatment for this country's middle-class taxpayers must support my amendment for complete repeal of the individual income tax.

I filed an amendment that repeals the AMT. I am going to push this body to speak on this proposal for these reasons: We need to get Members who say they support AMT repeal to show their support for the record; second, to eliminate the mythical budgeting that results from assuming current levels of AMT revenues; third, to show the American people we will walk the walk on the AMT repeal and not just talk the talk.

I know some who oppose my amendment will argue two points: that there is $180 billion in the budget for tax relief; and secondly, we can't afford the repeal of AMT.

As to the first point, the purpose of the Baucus amendment, which I supported yesterday, was to deal with less than half of the tax relief that expires in the year 2010. In a sense, Members have indicated where they want that money to go, and that revenue loss is built into the post-2010 period.

As to the second point, we can afford to repeal the AMT because revenues remain at or above record levels in the outyears with the AMT gone. Honest budgeting would recognize it as fictional in any event.

I yield the floor.

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Mr. GRASSLEY. Madam President, this budget proposal does not allow the Senate to address the unfair burden of the death tax. By 2011, the tax will affect all farms and businesses worth more than $1 million at a tax rate as high as 55 percent. In the State of Iowa alone, according to the USDA, we have more than 20,000 farms worth more then $1 million. Those families may be land rich, but they are cash poor, and they have to spend too much money today to plan on how to survive the unfair death tax. These are not big farms. With land prices today, you can have as few as 350 acres in Iowa to have a million dollars in value.

If the Senate fails to put money in the budget today and we leave the death tax in place in its punitive form, our failure to amend this budget will create the economic uncertainty that could dismantle our farms and small businesses in rural America. I will be voting ``yes'' on the Kyl amendment. It puts money in the budget. It is the responsible thing to do.