Court Security Improvement Act of 2007--Motion to Proceed--Resumed

COURT SECURITY IMPROVEMENT ACT OF 2007--MOTION TO PROCEED--Resumed -- (Senate - April 18, 2007)

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ALTERNATIVE MINIMUM TAX

Mr. GRASSLEY. Mr. President, yesterday was tax return filing day for most Americans for the 2006 tax year. While filing that 2006 tax return and paying tax owed for 2006 was stressful enough, for 23 million families who will be AMT taxpayers in 2007, there was added stress. That added stress is due to the fact that those 23 million families bear the uncertainty of whether
there will be an AMT patch for the year 2007; in other words, for Congress to take action so the alternative minimum tax will not apply to an additional 23 million families for this year's earnings as the present law is going to do it. Congress, each year, has taken action so that would not happen. The big question is will Congress act soon enough so that the uncertainty of these 23 million taxpayers will not be realized.

This matters for taxpayers now because the first quarter estimated tax payments are due for the 2007 tax year. I have a chart here I wish to show that shows the form for the payment these 23 million families have to make, and why going through the trouble of filling this out is stressful for the 23 million taxpayers--in addition to having to pay all of this tax. Barring an extension in the ``hold harmless'' provisions that made certain that people who filed on 2006 earnings did not have to pay the AMT, if we do not take action for the year we are in, AMT exemptions then will return to the pre-2001 levels. Many Americans may be surprised to find in their 1040 ES instruction package that the AMT exemption amount for single taxpayers is decreasing from $42,550 in 2006 to $33,750 in the year we are in now for earnings, 2007. And for married taxpayers, the exemption amount is decreasing by nearly $20,000, from $62,550 down to $45,000.

You can see here on line 29 that these higher exemption amounts are there. To add insult to injury in this whole matter, certain credits will not be allowed against the alternative minimum tax in 2007, including the credit for child and dependent care expenses, credit for the elderly or the disabled, and education credits. And that is just to name a few.

The alternative minimum tax is not a new problem and has been with us for several decades. The individual minimum tax--that is a precursor to our AMT--was originally enacted in 1969 after Congress discovered that 155 taxpayers with incomes greater than $200,000--these are 1969 figures--were not paying any taxes at all.

As originally formulated, the individual minimum tax affected one out of a half-million taxpayers. Clearly that situation has changed now very dramatically in the last 30 years when today about 4 million taxpayers are paying the alternative minimum tax. If we do not do anything this year, 23 million more people will pay it on earnings they are making right now.

Although not its only flaw, the most significant defect of the alternative minimum tax is that it is not indexed for inflation. If it had been indexed for inflation, then obviously we would not have these 3 million people, or these potential 23 million people, having to worry about paying the alternative minimum tax.

This failure to reindex the exemption and the rate brackets, the parameters of the AMT system, is also a bipartisan problem.

Perhaps the most notable missed opportunity to index the AMT for inflation was the passage of the Tax Reform Act of 1986. Another missed opportunity was the Omnibus Budget Reconciliation Act in 1993, in which the exemption levels were not indexed but were increased to $33,750 for individuals and $45,000 for joint returns. But this was accomplished by an additional rate increase.

By the way, the 1993 tax increase passed this body with only Democratic votes. Once again, graduated rates were introduced, except this time they were 26 percent and 28 percent.

By tinkering with the rate and exemption level of the AMT, 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 problem that keeps getting bigger. And by ``keeps getting bigger,'' I mean it is applying now to 23 million taxpayers for earnings this year to whom it should not apply.

In 1999, the issue again had to be dealt with. At that time Congress passed the Taxpayers Refund and Relief Act of 1999. In the Senate, only Republicans voted for the bill. That bill in fact included a provision that actually repealed the entire alternative minimum tax. If this bill had not been vetoed by President Clinton, we would not even be talking about this today.

Later on, in 1999, an extenders bill, including a fix good through 2001, was enacted to hold AMT harmless for a little longer.

Most recently, in March of 2007, less than a month ago, this body, now under the control of the Democrats, voted against an amendment I sponsored to put some honesty back into the budgeting process and to stop spending amounts that are scheduled to come into the Federal coffers through the alternative minimum tax.

Take a minute to visit about that vote on my amendment to the budget resolution a month ago. That amendment would have amended the budget resolution for fiscal year 2008 in order to accommodate a full repeal of the alternative minimum tax, preventing the same 23 million people, both families and individuals whom I am talking about today, from being subject to the alternative minimum tax in 2007, not to mention the millions of families and individuals who will be hit by it in subsequent years.

You would think we would have seen a flood of bipartisan support for that amendment, given the numbers of families represented by my colleagues across the aisle who are now paying the alternative minimum tax in 2007. But, instead, true to form, not a single Democratic Senator voted for the amendment to provide relief from the alternative minimum tax and to stop spending money this country does not have and was not intended to get. If you get it from these 23 million people, it has the capability of ruining the middle class in America. We got not a single vote from the other side of the aisle.

So even though the alternative minimum tax is a problem that has been developing for a while, almost 40 years, Congress has had an opportunity to deal with the issue but has blocked attempts to deal with the issue thoroughly. Or, if Congress passed it, President Clinton vetoed it. Although on numerous occasions Congress has made adjustments to the exemption and in the rates, it has not engaged in a sustained effort to keep the alternative minimum tax from further absorbing the working people who are in middle-class America. Instead, despite temporary measures, the AMT has gone from being a threat to millions of taxpayers who were never supposed to be subject to a minimum tax, to being a reality when they sent in their estimated income tax payments to the IRS for the first quarter.

That the alternative minimum tax has grown grossly beyond its original purpose, which was to ensure that the wealthy were not exempt from an income tax, is indisputable, and that the alternative minimum tax is inherently flawed then falls into the commonsense category.

Despite widespread agreement that something needs to be done about the alternative minimum tax, agreement on what exactly to do is not so widespread. I suppose if there had been an agreement to repeal it, I would have gotten more than 44 votes on my amendment to the budget resolution a month ago. So you can use your mathematics. It is going to take at least seven more people to agree with me before we can get that done. And a major factor in the disagreement relates to massive amounts of money that the alternative minimum tax brings to the Federal Government. In 2004, the alternative minimum tax brought $12.8 billion into the Treasury. Projections show that the AMT balloons revenues in coming years. These projections are used to put together the budget using current law, so that is why this money that was never supposed to be collected is put into the budget by the Congressional Budget Office and by the Office of Management and Budget in the executive branch.

This is a bipartisan problem. Whether you have a Republican majority or Democratic majority in this body, it is going to be handled the same way. Republican and Democratic budgets, then, rely on the same source of revenue--even though it is a revenue that was never supposed to be collected. In 1969, it was never anticipated it would hit more than people with adjusted gross incomes, at that time, of $200,000; and if you brought that on for inflation now, it would be somewhat a bigger figure but it would not take in 3 million people as it does today and it wouldn't be taking in 23 million people as it will this very year.

This means the central problem in dealing with the AMT is not money
that will come in, but people are counting on it to come in. I call it phantom income. Of course, for the 23 million people who file or have to file for this year's income, if we do not do something, it is going to bring in additional revenue, and it would not be phantom in that case, but it is phantom in the sense that if it was supposed to hit a few rich people and it is hitting 23 million middle-income Americans, it does not seem legitimate to count it as money coming into the Federal Treasury.

There are some people who would say we can only solve the alternative minimum tax problem if offsetting revenue can be found to replace the money the AMT is currently forecast to collect. Anyone who says this sees the forecast showing revenue being pushed up as a percentage of gross domestic product and, quite frankly, they like to spend more money so they want to keep it there.

These arguments are especially ridiculous when one considers that the alternative minimum tax was never meant to collect as much revenue; in other words, it is a failed policy. It is simply unfair to expect taxpayers to pay a tax they were never intended to pay. It is even more unfair to expect them to continue paying 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. So the way to solve this problem is to look on the other side of the ledger, on the spending side. Budget planners need to take off their rose-colored glasses when looking at the long-term revenue projections and read the fine print.

In general, it is a good idea to spend money within your means. That is true in this case as well. If we start trying to spend revenues we expect to collect in the future because of the alternative minimum tax, we will be living beyond our means. We need to stop assuming that record levels of revenue are available to be spent and recognize that 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 if we want to maintain a middle class in America. The problem will only get worse every year and make any solution more difficult.

We must also be clear that the revenue the alternative minimum tax will not collect as a result of repeal or reform should not be offset as a condition of repeal or reform. We should not call it lost revenue because it is revenue we never had to begin with.

This week millions of families are beginning to feel the ramifications of that revenue vortex. I have outlined that the alternative minimum tax problem has been developing for decades, but I want to make clear that something distinctly different and more onerous is happening this year for alternative minimum taxpayers; that is, that for the first time in 6 years, there is no money in the budget to fix the alternative minimum tax even for 1 year. So the outlook for those 23 million people who are paying it right now on incomes earned this year is even a little bleaker than in recent years.

For the first time in 6 years, there is also no bill on the floor to deal with the issue. Now, there is the Baucus-Grassley bill that I do not think the Democratic leadership has put on the schedule yet but they ought to if they want to preserve the middle class.

At estimated tax payment time last year, folks were feeling a similar crunch on the alternative minimum tax. But the legislative posture on this point was significantly different. This time last year, the alternative minimum tax fix bill for 2006 had already passed in both the House and the Senate. At this time last year, the tax-writing committees were in conference on a tax package that included a fix to the alternative minimum tax for the year 2006 income and was enacted in May of 2006.

This year, those 23 million families facing a 2007 estimated tax payment have nothing to refer to but the IRS instruction package that is telling them it is time to start paying on the 2007 alternative minimum tax problem now.

It is time for Congress to wake up to this problem. It cannot wait until the end of this year. It cannot wait until the end of the next Presidential election. The time is now. So I implore my colleagues to join me in addressing this issue.

Perhaps the 23 million families who are feeling the absolutely maddening tax increase of 2007, beginning this week, will be inspired to act, and hopefully we will have a prairie fire of support for acting on this quickly and maybe even doing the right thing by repealing it entirely.

We just went through that time of the year where, for most people, the Tax Code transforms from an abstraction to a concrete reality. The same is true of tax relief. What may be an academic or policy discussion becomes something more when the men and women of our Nation actually work out how much of what they have earned they turn over to us in Congress to spend for them.

Thanks to the popular and bipartisan tax relief enacted in 2001 and 2003, virtually all Americans paid less in taxes this year than they did last year. There seems to be several Members of this body who view that as a bad thing to happen, who would rather take what others have earned and stuff it into the pork barrel.

I think that American workers are the best people to decide how to spend their money and that letting them keep as much of their own money as possible is very good.

As I said, Americans generally paid less this year than they did last year because of bipartisan tax relief. Last year I talked about the slim majority who have governed the Senate for the past several years. If tax relief hadn't been bipartisan, the 2000 tax relief bill would not have received the support of nearly a quarter of the Democratic caucus that year when the conference report came up for a rollcall vote.

However, this popular and bipartisan tax relief has been put at risk by Democratic majorities in the House and Senate. The Senate-passed budget resolution only provides 44 percent of the revenue room needed to make tax relief permanent; only 44 percent. The House-passed budget resolution provides zero percent of the revenue room necessary, which means that taxpayers face a serious risk of being hit with a wall of tax increases in 2011, as illustrated by this chart, the wall between what taxes are being paid now and what will be paid when 2011 happens.

According to the U.S. Treasury, a family of four with an income of $40,000 will be hit by a tax hike of $2,052 per year, every year. That is an increase for a family of four with an income of $40,000 a year, not rich people.

To see the consequences, we need to look past academic seminars and working papers and wordy editorials to see what this tax hike will mean for real people. For a family of four at $40,000, this tax wall of $2,052 of increased payment to the Federal Government is real and at that time will be a real problem.

Right now I want to walk through the specific components of the bipartisan tax relief that are at risk. This chart breaks down what could be a $407 billion tax increase over 5 years. Here is the tax increases of various parts of the 2001-2003 tax bills that have those subdivisions in it, and as these expire, income will be coming in this much more from various things that automatically happen.

Let me be clear on this: This is a tax increase that Congress is not going to vote for. This is a tax increase that Congress would not have guts enough to vote for. This is a tax increase that is automatically going to happen because the tax cuts of 2001 and 2003 sunset in 2010.

To anybody around this body who says they are not voting to increase taxes, we can stop this. If we stop this, we keep the present level of taxation, we would not be cutting taxes more. The policy we have had in place for this decade would stay in place the next decade. That is not a bad tax policy because of the increase of the 7.8 million new jobs. And that is Chairman Greenspan saying it is responsible for the recovery we have. As pointed out, almost everything statistically that we use to show that the economy is working, it is all very positive.

So let's look at some of these subdivisions of this 2001-2003 tax bill. Let's take the marginal tax rate cuts. We set up a brand-new 10-percent bracket that year in 2001 so that low-income people would not have to pay as much tax, if their first tax dollar is taxed at 10 percent, where it used to be taxed at 15 percent for lower income people.

That costs $203 billion over 5 years, according to the Joint Committee on Taxation. I am sorry. That included the 10-percent bracket. But I was talking about the marginal tax rate cut generally, including the 10-percent bracket. What I said about the 10-percent bracket, making it possible for low-income people to pay less tax on their first dollar, is also true.

But the $203 billion applies to all tax rates. The 10-percent bracket costs $78 billion over 5 years, all by itself. But that proposal reduces the taxes of approximately 100 million families and individuals across the Nation. When considering the rest of the marginal rates, it appears some folks think the 35-percent tax rate is too low of a top rate.

Well, guess what. Repealing the marginal tax rates hits small business, the biggest source of new jobs in America. It hits that class of people the most.

The Treasury Department estimates 33 million small business owners who are taxed on their business income at the individual rate benefits from the marginal tax rate cuts. Repealing these cuts would cause 33 million small business owners to pay a 13-percent penalty. Why do we want to kill the goose that laid the golden egg, and that is small business, where most of the jobs are created in America? It is the backbone of our economy.

Do Democratic leaders want to raise taxes on those taxpayers? Treasury also projects that small business gets over 80 percent of the benefits of the cut in the top two rates. Do we want to raise the tax rates of small business by 13 percent? Does that make any sense? Democratic leaders, what would you say about raising that amount of money from small business, a 13-percent tax increase, if Congress does nothing?

So obviously I am recommending we take action between now and that sunset to make sure a tax policy that has been good for the entire economy, according to Chairman Greenspan, stays in place to continue to create jobs above and beyond the 7.8 million jobs that are already created in this recovery.

Now, what about death tax relief? That package scores $102 billion over 5 years. Most of the revenue loss is attributable to increasing the exemption amount and dropping the rate to 45 percent on already-taxed property. Is it unreasonable to provide relief from the death tax? Why should death be an incident of taxation? Why should you have a fire sale, when you do not get as much for assets when someone dies in order to pay the taxes?

Why not let the willing buyer or willing seller make a decision when the marketplace is going to work? Death is not the marketplace working. Is it unreasonable to provide that sort of relief, or should we raise the death tax on small business and family farms? That is what will happen if the bipartisan tax relief package is not extended.

Now we have the child tax credit. That is the fourth one down on the chart. Mr. President, 31.6 million families benefit from the child tax credit according to the Joint Committee on Taxation. How about the refundable piece that helped 16 million kids and their families? That proposal loses $41 billion over 5 years. I didn't think we would have a lot of takers on letting that one expire, but the Democratic leadership may be proving me wrong.

The next item on the list is the lower rates on capital gains and dividends. Thirty-three million Americans, a good number of them low-income seniors, benefit from the lower tax rates on capital gains and dividends. Some people try to portray this tax reduction as only for the idle rich. But the beneficiaries of this provision include working-class Americans who have spent a lifetime building up equity in property and securities and probably have their pension funds and their 401(k)s invested in the stock market.

Does the Democratic leadership think we should raise taxes on these 33 million families and individuals?

Take into consideration the fact that 25 years ago, only about 12, 15 percent of Americans had any investment in the stock market. Today it is between 55 and 60 percent because of 401(k)s, IRAs, and pensions.

Then we have the marriage penalty. Why would we ever think there should be a penalty on people being married? We finally did something about the marriage penalty. It is the first relief we delivered to that class of people in over 30 years. This proposal scores at $13 billion over 5 years. The Treasury estimates nearly 33 million married couples benefit from the abolition of the marriage penalty. Again, I don't think many folks would want to raise taxes on people just because they are married. Most of the folks who do want to raise taxes on married couples must be serving in the House and Senate because that is what is going to happen when this sunsets.

Another proposal is expensing for small business, meaning expensing of depreciable property, depreciable equipment, among other things. This is a commonsense bipartisan proposal. According to the Internal Revenue service, 6.7 million small businesses benefited from this provision in 2004. That is the most recent year for which we have statistics. If we don't make this provision permanent, small businesses face a tax increase of $12 billion in 5 years. When this sunsets--and the majority wants it to sunset--do they want to hurt small business? I think that is unwise tax policy.

Continuing on through the bipartisan tax relief package, let's look at the education tax relief provisions. This package helps Americans cope with college education costs. It scores at $2 billion over 5 years, and 16 million families and students benefited from this tax relief in 2004. In this era of rising higher education costs, should we gut tax benefits for families who want a college education for their kids? In order to keep competitive in the global economy, we ought to think about having the most educated workforce we can. Especially in the runup to the last election, I heard a lot about the importance of higher education and helping to ensure that costs do not keep people out of college. But college education is going to increase for middle-income people who are taking advantage of this tax exemption for college tuition. These provisions put those ideas into action and help people afford a college education. Does the Democratic leadership think scrapping them is good for our young people, good for our economy, good for middle-class families?

The last item on this chart is where both parents work and have to deal with childcare expenses. The tax relief package includes enhanced incentives for childcare expenses, and 5.9 million families across America benefit, according to the Joint Committee on Taxation. These provisions helped working mothers and fathers remain in the workforce while having a family. Does the Democratic leadership think we ought to take away these childcare benefits from working families?

I have taken my colleagues through about $407 billion of tax relief. It sounds a lot like an abstraction, but it provides relief to almost every American who pays income tax. I ask any of those who want to adjust or restructure the bipartisan tax relief, where would they cut in this package? Where would they cut? It would be very difficult, considering how this tax package has contributed to the revitalization of this economy, according to Chairman Greenspan, to touch it at all. It seems to me they would not want to kill the goose that laid the golden egg. Wouldn't they want to keep that goose laying those golden eggs into the next decade and do it today instead of waiting until 2010 to do it before it sunsets? The principle of the predictability of tax policy to get business to create jobs is very important. It is very unpredictable now. We get to 2009 and 2010, and we are not going to get the long-term investment until people know what the tax policy is. Some economists tell us this has a very detrimental impact on the economy.

When you ask what you would restructure or adjust, would you hit the 10-percent bracket, drive up taxes for low-income people, or would you hurt small business tax relief and kill the engine that creates most of the jobs, or would you eliminate the refundable child tax credit so parents, where both parents work, would have additional costs of working, and maybe one of them would have to leave the workforce, or do you want to kill small business and farmers by not reforming the estate tax, or do you want to penalize married people again by doing away with the marriage penalty relief?

What about dividend and capital gains relief, one of the tax bills that has brought $708 billion of new revenue because of increased economic activity, because we are letting 70, 80 million taxpayers decide how to spend their money instead of 16,000 corporate executives, if it is retained in the corporation instead of being given out in the form of dividends, or do you want to hurt people who are getting a college education because of the tuition tax credit or childcare generally?

In a smooth-running, with above-average levels of individual income tax as a percentage of gross domestic product, even with this tax relief package in place since 2001 and 2003, what area, I ask the people who want this to sunset and bring in more revenue because they want to spend more, would they adjust? Where would they restructure? Why undo a bipartisan tax cut that makes the Tax Code more progressive?

I say that without any hesitation whatsoever based upon the judgment of the Joint Committee on Taxation that those making more than $200,000 a year are paying a higher percentage of income tax than they were prior to the 2001 tax cut. As things stand right now, based upon the budget resolution that passed this body last month, bipartisan tax relief is in danger. The Democratic Senate has only provided for 44 percent of the tax relief beyond 2010, and the Democratic House has not provided for any. I am sure much will be said of the high cost of tax relief, but those comments are inherently misleading. My colleagues need to think about the high cost to the American taxpayers when they are hit with the largest tax increase in the history of the country that is going to happen without even a vote of the Congress.

Federal revenues are already at historically high levels, and if something is not done soon Americans will be hit with an additional wall of tax increases, January 1, 2011. If what some have called tax cuts for the rich expire, a family of four with incomes of $40,000 will face an average tax increase of $2,052.

In order to protect the interests of working Americans, our collective Republican leadership has introduced a bill, S. 14, called the Invest in America Act, to ensure that this largest tax increase in history does not go into effect. This bill will help small businesses. It is going to help families afford college. It will help seniors who rely on capital gains or dividends for income. It will help working parents take care of their children.

Why doesn't the Democratic House want to do any of these things? Which 44 percent of tax relief does the Democratic Senate have in mind? When I say this Republican leadership bill invests in America, it maintains existing tax policy. It is going to make sure the taxpayer doesn't run up against this tax increase wall.

I want to end today, as I did in some remarks I made last week, by urging the Democratic caucus to tear down this wall. The Republican Congress is eager to work with them in bipartisan cooperation to promote a progressive and fair Tax Code and to prevent a wall of tax increases from crushing the American taxpayer.

I yield the floor and suggest the absence of a quorum.

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