Small Business Lending Fund Act of 2010
Floor Speech
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Mr. GRASSLEY. Mr. President, while we are talking about taxes, I wish bring up something that is significant to about 26 million Americans. It doesn't deal only with small businesses, but obviously a lot of small businesses are affected by the issue I bring to my colleagues' attention. I do this several times a year. It deals with the alternative minimum tax, a tax that I am sure that out of the 26 million people who might be hit this year if we don't do something, a lot those are small businesspeople.
The AMT was first enacted by Congress in 1969. The alternative minimum tax was created in reaction to some very wealthy and very high income individuals paying no income tax. These high-income individuals were able to do this because they were able to claim a huge amount of tax credits and deductions legally.
Probably the sensible way to have dealt with this problem would have been to curtail the proliferation of those tax credits, tax deductions, and tax expenditures at that time. Unfortunately, that was not the course Congress took when the alternative minimum tax was set up, now 40 years ago. Instead, Congress created this alternative tax system that we call the alternative minimum tax. With the alternative minimum tax, an individual must first calculate his regular income tax, and then he must calculate his alternative minimum tax. The taxpayer compares the two numbers and pays the highest figure of tax owed. I know this is complicated, figuring one's taxes twice--as if the regular income tax all by itself isn't complicated enough--but it has gotten much worse over the decades.
The alternative minimum tax has not merely added complexity; it has ensnared tens of millions of Americans in its clutches. What was originally intended for fewer than 200 very wealthy taxpayers back in 1969 because they didn't pay any income tax--legally didn't pay any income tax--now has grown to ensnare tens of millions of middle-class Americans.
What is really worse is that it was supposed to get everybody to pay some income tax under the theory that if you live in America, even if you take legal advantage of everything the Tax Code allows you to do and still pay no tax, you ought to pay something, so the alternative minimum tax. But now the IRS tells us that there are a large number of people--not tens of thousands but thousands--who don't pay either the regular income tax or there are ways they don't legally have to pay the alternative minimum tax. So it isn't even accomplishing its original purpose of making sure everybody pays some income tax.
The reason it has grown to include many middle-income Americans is because the exemption amount has not been indexed for inflation. Congress has increased the exemption amount so it would be targeted toward those people it was meant to hit--very wealthy people.
We keep talking around here about patching the AMT. We have done it every year since 2001. Congress has passed the AMT so that only 4 million taxpayers have been subject to it in the past few years. At this point, however, the AMT is not patched for 2010. So unless Congress acts to patch the AMT, rather than only about 4 million Americans being subject to the AMT, more than 26 million will be.
The chart I have here shows my colleagues a breakdown of the number of families and individuals State by State subject to the alternative minimum tax. These families and individuals should be paying the alternative minimum tax right now because Congress hasn't acted so far this year, after 9 months, to do the patch. That means that about 22 million families and individuals are currently scheduled for quite a surprise come April 15, 2011. Roughly 4 million Americans are presumably used to paying the AMT, but the additional 22 million families and individuals currently subject to it may not have realized they are standing in a hole dug by this Congress. Until Congress patches the AMT in 2010, these individuals should either have their wages withheld at a higher rate and/or pay estimated taxes to take into consideration the fact that the AMT has not been patched. But we would have to figure that very few of these 22 million Americans are, in fact, paying the higher estimated taxes in anticipation of Congress not acting on the AMT. They probably do not know.
The third quarterly estimated tax payment is due today. Literally right now, taxpayers across the country are under the legal requirement to pay their estimated tax. They should be using the form depicted on this chart, the form 1040-ES. I hope I am not here in January when the final estimated payment is due.
It is disappointing that Congress has created a situation where law-abiding citizens who still trust in Congress to look out for them are at odds with the law, even if only temporarily. The betting money is that Congress will get this job done before the end of 2010, but in the meantime, confusion reigns.
In many ways, people simply do not know what to do about this. As I said, taxpayers don't know how much estimated tax to pay. The IRS doesn't know what forms to be preparing for publication. Tax software firms don't know how they should program their software. Tax professionals are not sure what to advise their clients. Government revenue estimators don't know whether to count the AMT patch in or out. And most important, our fellow Americans don't know how to plan their financial affairs. Can they afford that vacation or can they afford a new car? Can they afford some additional gift to charity? Should they contribute more or less to their 401(k)? The answers to these questions turn in part on whether Congress patches the alternative minimum tax.
So what is to be done? The 2005 bipartisan tax reform panel had two different tax reform options: the simplified income tax and the growth and investment tax. But under either option, the bipartisan tax reform panel said that Congress should simply repeal the AMT. I think that is what has to be done.
Don't forget the philosophy behind it 40 years ago, not indexed. That is why we have to patch, is because 200 people, maybe only 150 at that time, were not paying any income tax. Progressives thought: Well, everybody living in this free country, even if they legally don't have to pay any income tax, ought to pay ``some tax.'' So that is the philosophy behind it. We have not argued so much with that philosophy over the last 40 years. But we are in a situation where the IRS says there are some people in America who legally don't have to pay income tax or the alternative minimum tax. Does that make sense? Why would we have that law on the books if it is not fitting its original intention?
That is what I would favor--complete repeal of the AMT. If that isn't to be done, I would favor then a permanent patch of the AMT. Given Congress's actions in this area, it seems likely we will patch it year after year after year, so wouldn't it help with everyone's plans to simply do that once and for all? That is the question. That would be the way to do it. It is predictable.
But allow me to address the AMT in the context of statutory pay-as-you-go. The statutory pay-as-you-go was enacted earlier this year as part of the majority party's debt limit increase. Some on the other side of the aisle have described statutory pay-as-you-go as a fiscally responsible way in which to address the 2001 and 2003 tax relief extensions.
Statutory pay-go provides that all the regular tax relief for taxpayers under $250,000 is permanent. Statutory pay-go, however, only provides for a patch to the AMT just for 2 years: 2010 and 2011. So what is going to happen in the next year, come 2012? There are at least four possible options.
Option 1 would be: In 2012 and after, AMT will not be patched. But I do not really think that is an option Congress would seriously entertain--then or now--to add another 20 some million people paying this tax that middle-income taxpayers were never supposed to pay in the first place.
Option 2: In 2012 and after, AMT will be patched and paid for with new taxes. That would be consistent with what we call statutory pay as you go, but does anyone think that would make sense, pay for tax relief with new tax burdens?
Option 3: In 2012 and after, AMT will be patched and paid for with spending cuts. In general, I believe that we need to use spending cuts to tackle our deficits and debt. But we know our friends in the Democratic leadership are allergic to spending cuts. So, as much as we would like to reign in the record spending spree of the last 18 months, I don't see my friends on the other side agreeing to cure their allergy to spending restraints. They've rejected roughly $270 billion in spending restraints since adopting the much ballyhooed statutory pay-go regime.
But then there is option 4: In 2012 and after, AMT will be patched and not paid for. That certainly is an option I am very open to and quite possibly what Congress will ultimately do and has done in the past. Money that wasn't supposed to be collected in the first place shouldn't be relied on as revenue and so doesn't need to be offset.
However, if the AMT is patched and not paid for, then there is a hidden $1 trillion revenue loss in the package. This means the deficit impact of the so-called fiscally responsible package is understated by $1 trillion. The so-called fiscally prudent statutory pay-as-you-go legislation likely has a $1 trillion understatement of the deficit impact.
If fiscally responsible is understating an increase to the deficit by $1 trillion, I wonder then what fiscal irresponsibility would be. The AMT is a serious problem and needs to be addressed in a comprehensive, permanent, prompt, fiscally prudent fashion.
I yield the floor.
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