Alternative Minimum Tax
Floor Speech
ALTERNATIVE MINIMUM TAX -- (Senate - October 24, 2007)
Mr. WYDEN. Mr. President, this country is headed toward a total meltdown on taxes. I am going to spend a few minutes this afternoon to talk about how that can be cooled off for a bit.
Yesterday, Treasury Secretary Paulson warned that unless the Congress acts within the next month on the alternative minimum tax, up to 50 million households, more than a third of all taxpayers, could be clobbered with new taxes. Congress has known for some time that unless the alternative minimum tax is addressed, 23 million taxpayers would be hit with the double whammy of having to calculate their taxes twice, and typically pay a higher tax bill.
First, they are going to have to do their taxes using the regular 1040 form; then they will have to calculate their taxes using the alternative minimum tax, which has a completely different and more complex set of forms.
Having to do your taxes once is bad enough. On average, that takes something like 15 to 30 hours, depending on whether a taxpayer is itemizing. But having to do your taxes is simply bureaucratic water torture.
Yesterday's announcement by Treasury Secretary Paulson revealed that twice as many taxpayers as previously estimated could be put in bureaucratic limbo by the alternative minimum tax and face delays in processing their returns and getting a tax refund. The problem is going to get worse and worse each year, as more and more taxpaying Americans are dragged into the alternative minimum tax parallel universe of tax rules, because the tax law is now stuck in a time warp.
It was never indexed for inflation. If Congress does not act, an estimated 30 million taxpaying Americans are going to be hit by the alternative minimum tax double whammy in 2010.
The Congress has not been able to get ahead of the problem. It is simply, at this point, trying to keep the problem from getting worse. Each year, the cost of even the so-called temporary patch to keep the AMT from clobbering more persons goes up. This year it will cost $55 billion to preserve the status quo. The next year the cost will go to $80 billion. Over 10 years the cost is an astounding $870 billion.
The Senate Finance Committee, on which I serve, is trying to find a way to pay for a 1-year fix. Senators are working in good faith in a bipartisan fashion, but there is not a huge pot of money out there to pay for a $55 billion patch for the alternative minimum tax.
I will be working with my colleagues on a bipartisan basis to look at every conceivable possibility to come up with the money for 1 year of alternative minimum tax relief. But certainly the Congress ought to start, and start now, to find a clear path out of the budgetary haze. I think that path and all roads that the Congress ought to be looking at should lead to comprehensive tax reform in our country.
This week the House Ways and Means chairman plans to unveil his proposal that would repeal the alternative minimum tax as part of a larger tax reform effort. Over the summer, Treasury Secretary Paulson called for corporate tax reform.
Ways and Means Chairman Rangel has indicated he is going to look at the issue of corporate reform as part of broader legislation he wants to consider. But I think there is an opportunity now, if the administration would engage the Congress on tax reform, and there is a model. The model is one where a Republican President, Ronald Reagan, worked with the Democratic Congress to achieve historic reform in 1986. It was based on a simple set of principles. Those principles were: It ought to be possible for everybody in our country to get ahead. It ought to be possible for people who work for a wage and people who make money through investments to get ahead.
It was a system that kept progressivity so that there was a sense of fairness for all Americans. It was a system based on cleaning out a lot of unnecessary tax breaks, clutter in the Tax Code, in order to finance reform.
That is what I have proposed to do in legislation that I call the Fair Flat Tax Act. I believe there are real opportunities for bipartisan reform, starting with the issue of tax simplification. In our Fair Flat Tax Act we have a 1-page 1040 form, something like 30 lines long.
President Bush had a tax reform commission that looked at reform. Their simplification process involved a form that was something like 34 lines long. For purposes of Government work, that is about the same thing. We could get a bipartisan agreement on tax simplification, if the President engaged the Congress fairly quickly. Certainly, the other issues will take a great deal more thought and involve more complexity, but I have been asking witnesses who come before the Finance Committee their views about tax reform. These are experts who come from across the political spectrum. They share widely differing views. But of the witnesses who came to the Finance Committee, 19 out of 20 witnesses agree with my fundamental premise that the model of 1986, holding down rates for everybody, keeping progressivity and financing it by getting rid of loopholes and breaks, those witnesses all said the 1986 model, put together by the late President Reagan and Democrats in Congress, is still a model that makes sense for today.
One of the witnesses even said:
Baseball fans remember the moment when Babe Ruth pointed at the stands and hit a home run, and tax geeks remember the 1986 Act with similar relish.
Like the 1986 act, I start with simplification, as I have outlined. Then I look to make the Tax Code flatter to make sure that instead of six individual brackets, we would have perhaps three. I start with the rates Ronald Reagan started with, but I am not wedded to those particular rates. Ronald Reagan and Bill Bradley and others in 1986 looked at something in the vicinity of 15 and 28 percent. The point is, if Members of this body, working with the President on a bipartisan basis, want to get into this, it would be possible to look at comprehensive tax reform now. The alternatives, as the Senate sees how difficult it is to fix the alternative minimum tax and deal with various proposals as it relates to investment and hedge funds, strike me as nowhere near as appealing as dealing with comprehensive tax reform.
Many have raised the question of the issue of the differential treatment between work and wealth. It is a fact that the cop walking the beat today who makes their money on wages pays taxes at a significantly higher rate than somebody who makes their money from investments. That is a fact that ought to trouble all Americans. What we ought to be trying to do is not pit those two against each other but look at an approach such as the one pursued in 1986 so that all Americans have a chance to get ahead. That is what we are about as a nation, not pitting one group of people against another. We want people who work for a wage to have a chance to get ahead as well as pay for necessities for their families. We all understand how important investment is at a time when we face great economic challenges globally. The fair flat tax of 2007 seeks to try to ensure that all Americans would have an opportunity to get ahead and provides real relief to the middle class through fewer exclusions, exemptions, deductions, deferrals, credits, and special rates for certain businesses and activities and through the setting of one single flat corporate rate.
On the individual side, the fair flat tax ends favoritism for itemizers while approving deductions across the board. The standard deduction would be tripled for standard filers from $5,000 to $15,000 and raised from $10,000 to $30,000 for married couples. As a result, the vast majority of Americans would be better off claiming the standard deduction than having to itemize their deductions, so filing will be simplified for all Americans. We also keep the deductions most used by middle-class families, as Ronald Reagan and Bill Bradley and others who worked so hard in 1986 did. We protect the home mortgage interest break, the one for charitable contributions, and the credits for children, education, and earned income. But nobody would have to calculate their taxes twice under the Fair Flat Tax Act.
The alternative minimum tax would be eliminated. This is particularly important right now as citizens look at the challenges they are going to face next year.
What makes the Fair Flat Tax Act unique is it also corrects one of the most glaring inequities in the current tax system; that is, regressive State and local taxes. Under current law, low and middle-income taxpayers get hit with a double whammy once again. Compared to those who are more fortunate, they pay more of their income in State and local taxes. Poor families pay more than 11 percent, and middle-income families pay about 10 percent of their income in State and local taxes, while more fortunate individuals pay only about half. Because many low- and middle-income taxpayers don't itemize, they get no credit on their Federal forms for paying State and local taxes. In fact, two-thirds of the Federal deduction for State and local taxes goes to those with substantial incomes. Under the Fair Flat Tax Act, for the first time the Federal code would look at the individual's entire tax picture, their combined Federal, State, and local tax burden, and give credit to low and middle-income individuals to correct for regressive State and local taxes.
What this all means--and we had Jane Gravelle and her excellent team at the Congressional Research Service work on these numbers--is that the typical middle-class family with wage and salary income up to approximately $150,000 a year would see tax relief in a way that would not cause the Federal Government to lose revenue.
Finally, by simplifying the code, there are other benefits. With a simpler system, it would be harder for individuals to take advantage of the system and easier for the Internal Revenue Service to catch those who do cheat. At present, there is a tax gap between taxes owed and collected of over $300 billion per year. Chairman Baucus and Senator Grassley have done yeoman's work on this issue. I believe the Fair Flat Tax Act can make, in addition, a significant dent in dealing with the tax gap, raising a significant amount of revenue from a source that would not increase taxes. The Fair Flat Tax Act, as it relates to the tax gap issue, is a win for all Americans except for those who have been cheating the system.
I am obviously aware that the clock is ticking down on this session of Congress. Certainly, by early next year, in the thick of a Presidential election, something such as this is daunting. But it is time for Congress to get started now on what witness after witness after witness in the Finance Committee is saying; that is, the urgent need, after scores of tax changes, to get about draining the swamp.
To give you an idea of what the numbers are with respect to tax changes, the latest analysis shows we have had something akin to 15,000 tax changes. That comes to three for every working day. Even regional IRS offices, according to practitioners I talk to, cannot agree among themselves as to how to apply this increasingly complicated Tax Code.
It is time to get started. The Bush tax cuts expire in 2010. Certainly, that is going to cause additional confusion and chaos for taxpayers. With the problems the Congress is wrestling with now, such as the immediate crunch of the alternative minimum tax and with the hammer poised to come down in 2010 with all the other expiring tax laws, there is a strong incentive for members of both political parties to come to the table and get to work on tax reform.
I hope colleagues will look at the Fair Flat Tax Act as a way to start the debate. I don't consider it the last word on this extraordinarily important subject, but I hope we can begin the debate now.
I yield the floor and suggest the absence of a quorum.
Source