Tax Reform

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Mr. WYDEN. Madam President, Senator Coats and I have introduced bipartisan tax reform legislation. It is the first comprehensive overhaul of tax reform law in 25 years, since 1986, when then-President Reagan and Democrats got together and worked on a bipartisan reform that cleaned out scores of special interest tax breaks in order to hold down rates for all Americans and keep progressivity.

Senator Coats and I have worked also with Senator Gregg. I had that good fortune for a number of years, and have picked up on some of what was done in 1986 by President Reagan and a large group of Democrats. He and I intend, in the days ahead, to come to the floor of the Senate and talk about some of the most offensive aspects of our totally dysfunctional tax system.

Today, we thought we would begin by discussing the alternative minimum tax. It seems to be pretty much the poster child for what is broken about the American tax system. It was enacted in 1969, after the Congress learned that 3 years earlier 155 wealthy taxpayers had paid no tax at all. The alternative minimum tax was designed to hit what amounted to a small group of tax evaders and not the millions of middle-class taxpayers who get shellacked by the AMT every single springtime. The problem has been that Congress has never indexed the AMT brackets for inflation.

While the regular tax bracket standard deductions and exemptions do get adjusted for inflation, the brackets and exemptions of the alternative minimum tax do not. As a result, millions of middle-class taxpayers, whose only fault is their incomes grew with the economy, now slip into this nefarious alternative minimum tax zone each year.

I would be interested, for purposes of starting this colloquy, to get the reaction of my friend and partner on it. We are going to bring up a number of these aspects of the tax system that cry out for overall reform. But I wonder what my friend's sense is about starting today with the alternative minimum tax, and how important it is that reform is done there for middle-class folks in Indiana and around the country.

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Mr. WYDEN. Madam President, I hope that folks paying attention to this tax reform debate pick up on what Senator Coats has just described. When the alternative minimum tax was first debated, the country was talking about 155 people. These were the so-called wealthy folks. They were paying no taxes at all. What Senator Coats has just described is, next year, what started as a program to try to make sure that 155 people didn't end up getting a sweetheart deal, now we are going to see 34 million people crushed by this inequitable kind of tax, a kind of bureaucratic water torture.

We have about the same numbers in Oregon that Senator Coats has in Indiana. In 2008, 44,000 Oregon taxpayers had to pay the alternative minimum tax. Without some kind of extension or, as Senator Coats and I essentially want to do, abolishment of the alternative minimum tax, that is going to rise to close to 400,000 next year. The people who are getting hammered by this alternative minimum tax certainly don't fit that small class of the so-called freeloading wealthy folks who are figuring out ways to pay nothing.

For example, a woman earns $65,000 in 2010, say she manages a health club, she has three kids, she has to file her taxes independent of her husband because they are in the middle of a divorce. As someone who is married, filing separately, she would have been hit by the AMT in 2010, according to the American Institute of Certified Public Accountants. Think about that, a woman who manages a health club making $65,000, with three kids, filling out her taxes and going through the unbelievable headaches, being singled out under the alternative minimum tax.

I ask my friend from Indiana--and I am sure he has very similar people in Indiana--is that the kind of person the alternative minimum tax was designed to scoop up back in 1969?

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Mr. WYDEN. Would the Senator agree that the difficulty of projecting the AMT tax liability makes it tough for taxpayers to compute their estimated tax payments and creates a situation in which, just because of its complexity, they can get hit with penalties?

I think the reason Oregonians are concerned about this--we have heard about it in the Senate Finance Committee--is that the AMT is essentially a separate tax system with its own tax rates and deduction rules which are less generous than regular rates and regular rules. This contributes to the tax-filing nightmare. The only way you can tell if you owe the alternative minimum tax is by filling out the forms or by being audited by the Internal Revenue Service. If it turns out you should have paid the alternative minimum tax and didn't, you owe back taxes plus any penalties or interests the IRS wants to dole out.

My question is, I ask my good friend, how in the world is a typical taxpayer going to be able to make sense out of something like that which lots of accountants tell me they cannot even sort through?

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