Press Conference with Senate Minority Leader Mitch McConnell (R-KY); Senator Charles Grassley (R-IA); Senator Gordon Smith (R-OR)
Statement
Press Conference with Senate Minority Leader Mitch McConnell (R-KY); Senator Charles Grassley (R-IA); Senator Gordon Smith (R-OR); Senator Mike Crapo (R-ID)
Subject: Alternative Minimum Tax (AMT)
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SEN. MCCONNELL: Good morning, everyone.
What we want to do -- take a few minutes to talk about this morning is the AMT. When this was started by the Democrats many years ago, the idea was to capture a few, very wealthy individuals who were not paying taxes at all because of various preferences in the tax code, and as we all know, the looming presence of this is beginning to gobble up the middle class.
The AMT patch expired last year. Typically, we have fixed this earlier in the year than now and we're getting close to the time where IRS forms have to be completed and we really need to act to fix the AMT. If we don't act soon, about 25.7 million families and individuals will be hit with a very unpleasant surprise next year to the tune of about $65 billion in taxes, all of this with a proposal that was originally designed to capture a small number of taxpayers.
We have two of the experts from the Finance Committee behind me today, Senator Gordon Smith, Senator Mike Crapo, who have been working on this for years and have been our leaders on the subject and I'd like to call first on Senator Smith.
SEN. SMITH: Thank you, Leader.
We're gathered here together as Republican senators because of a belief that we share that money left at home, money left with families, is money that works to do more good for more families than bringing it to the Beltway, growing government and trickling it back in the form of government spending. And it is that belief that unites us, that caused us when we were in charge of the Senate every year to provide the patch necessary to make sure that AMT did not capture more and more people in the middle class.
Our concern is as the clock ticks, the days of the calendar get shorter, that we are soon going to be up against a place where there is just a snooze button and our friends on the Democratic side are taking no action to wake up, and if Congress does not take action to correct, or in my preference, to repeal AMT before the end of 2007, upwards of 20 million middle income households will find themselves paying AMT, something that was never envisioned even when this tax was created.
So if Congress does not act, what will happen in Oregon? Two hundred and thirty thousand additional tax filers, the great majority of which are middle income Oregon families will be hit by the AMT that were not impacted last year. That's 230,000.
Nearly 17 percent of all Oregonian taxpayers will be subjected to the tax. In 2005, less than three percent of Oregonians were subject to AMT. If we do nothing, 17 percent will be impacted.
I do believe that we should permanently eliminate this taxpayer nightmare. This is a Damocles sword that hangs over the middle class. We call upon our Democratic friends to exercise the leadership and follow the example of Republican Senates in the patch that always patched this tax before we went home. We need to do it. We need to do it soon.
SEN. CRAPO: Thank you. Mike Crapo from Idaho.
Let me just add a couple of other perspectives to this. As our leader indicated, when this Alternative Minimum Tax was first enacted, it was designed to get at 155 taxpayers who were very wealthy, but who had been able to avoid taxation under the code. It was an Alternative Minimum Tax. It was not intended that it grow to consume the size and scope of reach that it now does have. The reason that it has grown and is posing these problems is because it wasn't indexed to inflation, and now because of the simple fact that we did not index the tax, we see each year the numbers of people in America who are facing this tax increase. Because of that, we see the kinds of concerns like in Oregon that Senator Smith has raised.
I just looked at a chart recently in terms of what will happen to every state with regard to this and the average tax liability for these approximately 23 to 25 million taxpayers who will be hit this year with the tax if it is not fixed is somewhere between $3,300 and $5,800, depending on the state in which an individual lives.
One of the problems that I think that we must also recognize here though is not that we must, just that we must act, because if we don't act and, by the way, this number continues to grow. What Gordon didn't tell you I don't think is that the year before last it was only three percent of Oregonians.
SEN. SMITH: Yes.
SEN. CRAPO: This year it was --
SEN. SMITH: Seventeen.
SEN. CRAPO: Seventeen percent of Oregonians who are going to be hit and next year it will be more and the year after it will be more than that; the same in every state.
I've seen the charts that show that if nothing is done, ultimately, the Alternative Minimum Tax will collect more revenue than the rest of the entire Internal Revenue code. It is a tax that is growing like a virus that was never intended to grow in this way.
The problem that I want to point out here that we must face is that under the current PAYGO rules, which many of us call tax go rules, in order to fix this problem, which for a one year patch is about a $50 (billion) to $60 billion fix or for a two year patch, which we really need because we've now almost completed one year and we need to fix this year, as well as next, it'll be about $135 billion.
In order to put either of those two patches into place, we need to raise taxes under our current PAYGO rules in other areas, imposing new taxes on other Americans or maybe the same Americans in another way, in order to pay for this $50 (billion) to $135 billion fix.
Many of us, I know that the chairman of the Finance Committee has consistently said this, that many of us feel that since the Alternative Minimum Tax was never intended to reach to the extent that it reaches, that Congress never intended this tax to be collected from so many Americans, that we should not subject this tax to the PAYGO rules and if we are able to do, in Congress, we ought to make the tough decision to make the fix and my personal belief is that if we are willing as members of Congress to acknowledge that this tax was never intended to reach the way it does and to hit the scope that it has reached and that we can avoid the PAYGO rules by waiting them for the fix on this tax, then we ought to fix it permanently instead of going -- limping along year by year.
The last point that I will make is that we've already this year reached the point where the Internal Revenue Service has to publish their tax forms, and since Congress has not, excuse me, fixed or imposed the fix for the patch this year. We are going to see mailings coming out of the IRS to these 23 to 25 million Americans who will, all of a sudden, realize that they owe Alternative Minimum Tax, and, in fact, they will make the further realization that they should have been making quarterly payments on their tax liability and that they will owe penalties for failing to have made those payments.
We have a very difficult situation building our tax code right now. We need immediate action. We need solid and decisive action, and in my opinion, we need final action to eliminate the Alternative Minimum Tax.
SEN. MCCONNELL: Questions, anyone?
Q The president asked basically to use PAYGO for AMT reform in the last couple of years and wanted to be -- AMT revenues to balance the budget, the Democrats did the same, I mean, the repercussions of not paying for this are substantial for the budget -- going out for years to come.
SEN. CRAPO: Well, my response to that is, first and foremost, you are correct. The budget projectors use the PAYGO revenue that I was talking about earlier and if Congress does nothing to fix the Alternative Minimum Tax, those projections, as I said, grow to a size larger than the rest of the Internal Revenue code, but I don't believe that any of us, Republicans or Democrats, truly believe that, A, that was intended by Congress or, B, that would be allowed to happen by Congress. One way or the other, we will do the yearly fixes or we will do something else, and so in my opinion, it's time for Congress to clear up the budget rule, to clear up the budget issues and to recognize that this tax was never intended to be what it is and that we should stop using it in our projections and then we've got to deal with the dollar figures. You're right. But we've got to first correct the revenue issues that are generated by the false picture that the Alternative Minimum Tax creates for the budget, but the very real threat that the Alternative Minimum Tax presents to American taxpayers.
Q Senator McConnell -- why didn't you take it then?
SEN. MCCONNELL: What?
Q Why didn't you pick the AMT in 2001 when you had this big tax bill --
SEN. CRAPO: We tried. We didn't have the votes. What we were able to do -- we did what we could accomplish in the 2001 and 2003 tax bills, but the price for fixing the PAYGO price for fixing the Alternative Minimum Tax would have consumed every other possibility in the tax debate that was happening at that time and then some, and so it was just a matter of, frankly, the politics of counting where the votes were and doing what we could. Many of us, from long before then, have been trying to get this fixed and that's why I stand here today and I think with strong support on our side and say that we will never get to where we get those votes unless we are willing to acknowledge that we must waive the budget rules and move forward to fix this issue.
Q Are you urging this AMT fix as being a standalone bill? Or do you envision it being as part of broader tax reform this year?
SEN. MCCONNELL: Yeah. I don't think we've really addressed the issue of exactly how. The point that we're trying to make today is the urgency of dealing with this and I think Senator Smith and Senator Crapo have laid out the case for acting quickly.
Q Senator McConnell, the committee put out a paper yesterday which compared the AMT clause in extending capital gains at a marginal rate and the implication was that the AMT was of a lesser priority, but you just said that it is urgent. So how does the AMT fit into a broader --
SEN. MCCONNELL: Well, you're sort of asking the same question that was just asked.
We've not determined what an overall approach might be. What we do think and what we're trying to underscore here today is that there is a sense of urgency about this AMT fix. It has a lot of practical problems with regard to the Internal Revenue Service and the returns that are being, that will be required and as to how it ultimately occurs that's yet to be negotiated with the other side.
Q (Off mike) -- leadership level. What have they said to you about when they plan to move?
SEN. SMITH: Well, this, of course, is their responsibility to move, and yes, we have weighed in on the committee to make clear to them that this is one of many tax categories that we think is very important for this Congress to deal with or else it's going to body slam the middle class.
Q Well, what have they told you about why there is a delay?
SEN. SMITH: Well, they are looking, obviously, to find the offsets in PAYGO rules to either reduce spending or raise other taxes, but the problem they have, obviously, is those other taxes are not very popular to raise and are very counterproductive economically to our country. The point that we're making is that, you know, not all tax cuts are created equal, but all tax cuts hit different people. We just think that this particular feature of the AMT that's capturing so much of the middle class is very regrettable. We always fixed it. We found a way and we share the belief that money left with those families left at home actually does more good for America than if we bring it here, and the tax cuts, other than AMT that we have advocated and voted for, along with the full repeal of AMT repeatedly, have shown their benefit to the American economy. I think the case speaks for itself and we hope our Democratic friends will show the leadership we did and extend them again.
Q Senator McConnell, are you going to urge Republicans who voted against the patch -- does that include offsets --
SEN. MCCONNELL: Yeah. What we're trying to underscore here today is the need to do this, need to act soon. Exactly how it's done is yet to be determined, but we think it needs to be done and to be done quickly.
Q Senator McConnell, do you have the votes from the Republicans to try to waive the PAYGO rules --
SEN. MCCONNELL: The risk of being redundant, exactly how this is going to go forward is yet to be determined, but as Senator Smith pointed out, if you apply the PAYGO rule to the fix it creates an interesting dilemma, which I'm sure our Democratic friends are wrestling with now in trying to figure out whose taxes to raise in order to deal with this particular problem.
Now, we have the chairman of the committee here who might be a good one to address the overall matter, but I think -- the fundamental point we're trying to make today is that this needs to be done and needs to be done soon.
SEN. GRASSLEY: Well, a lot of people refer to the AMT now as the accidental middle income tax, and it's one of the worst tax policies the federal government has ever had. It doesn't even hit the super- rich the way it was supposed to and we were told there are 2,500 super-rich people that even found ways of getting out of the Alternative Minimum Tax, and the bad news, of course, is that it's going to get much worse. The Democratic leadership's failure to extend the AMT relief so far this year will cause hardship and confusion for millions of families who already are forced to perform AMT calculations for their households.
More delay causes overpayment of taxes, underpayment of taxes, filing errors, wasted tax dollars on revised IRS forms and guidance. Democratic leaders need to get off the dime, enact AMT relief sooner rather than later. We need to cooperate with them in that effort and we will. We need a House bill so that the Finance Committee has a vehicle to deal with this time-sensitive problem.
Looking back, this all could have been avoided if President Clinton hadn't vetoed in 1999 the bill that phased out the AMT. After that during my chairmanship of the Finance Committee, we held harmless taxpayers, would have been hit because we lowered tax rates. Looking ahead, ranking member McCreary of the House Ways and Means Committee and I have asked the Treasury Department to analyze the impact on taxpayers' of Congress' failures to act thus far this year. At the very least, we need the AMT patch that's been used in recent years to protect taxpayers. Even so, this falls far short of what Democrats' pledged to do to fix the AMT problem when they took over in January.
In Iowa, over 100,000 filers, mostly families with kids, I'm sorry to say, kids -- because those deductions make a difference of whether or not you pay the Alternative Minimum Tax, they will be facing an unexpected tax increase because of the AMT if we do not deal with the patch.
No member of Congress, Republican or Democrat, should delay what needs to be done and that is an extension of the patch and from my point of view as I offered an amendment on the budget in the spring to do away with it because it's not serving the purpose it was, not hitting the super-rich the way it was supposed to as I indicated, and it's going to hit 19 million other people this year, already hitting 19 million people this year. The only thing is they don't realize it because they haven't followed it.
So we stand ready to work with Democratic colleagues, to make sure that this tax increase to 19 million people, additional people, doesn't happen.
Q Senator Grassley, have you received any overtures or what have you heard from the White House in terms of where we go after tomorrow on S-CHIP after that vote failed in the House?
SEN. GRASSLEY: Nothing. I haven't had a conversation with the White House on this issue since I talked to the president the Thursday, well, let's say, roughly two weeks ago, maybe it was three weeks ago I talked to the president on the phone.
Q Have you had any conversations with Mr. Rangel about the AMT situation? Have you got a sense that -- time is running out -- tax bills.
SEN. GRASSLEY: No, I have not.
Q Do you believe that the Finance Committee --
SEN. GRASSLEY: Well, we could act, but we can't finalize anything in the Senate or we at least can't send a bill to the House until we have a bill from them, so that's why I said that. It's a procedural thing.
Q If you look at the budget from the Democrats -- either the AMT or a balanced budget --
SEN. GRASSLEY: No. I think this really isn't answering your question because there's not a short answer to your question, but you've heard me make these statements so many times on the floor of the Senate. I know our budget law requires what I'm going to speak against, but I still think that we need to point it out that this is money that's calculated by CBO coming in. It makes the bottom line of our budget look better, but people up to now haven't had to pay it and we want to see that 19 million more people don't pay it.
So we count it, but we shouldn't count it because these people were never supposed to pay it in the first place. So why don't we acknowledge and plus the fact for the third time this morning, I'm emphasizing that about 2,500 of the super-rich that ought to pay it have found ways of getting out of it, so it's an argument, not just for a patch, it's an argument for doing away with it.
Q Are you okay with changing the tax codes on the 2,500 of the super-rich --
SEN. GRASSLEY: As a compromise if I could get this, I'd consider it quite a victory for the middle-income taxpayers. If we could index from the original intent of it, I'd think we'd do what you want to do, while indexing itself would only, that would only answer half of it. It would keep the middle income from being caught up in it.
I don't know exactly what changes need to be done to have it applied to the so-called super-rich the way it was intended to apply in 1969, but nobody including the super-rich seemed to raise a lot of questions about the Alternative Minimum Tax applying to them, so whatever that would take, the answer is yes, but I think the best thing to do is just do away with it, but if it were indexed plus doing what you said, I would consider it a worthy compromise.
Okay. Thank you all very much.
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