Hatch Calls on Congress to Act to Prevent Middle-Class from Being Hit with Alternative Minimum Tax

In Speech, Utah Senator Says President’s So-Called ‘Buffet’ Tax is an AMT in Waiting, Warns of Impact of AMT on Middle-Class Families

WASHINGTON –In a speech on the Senate floor, U.S. Senator Orrin Hatch (R-Utah), Ranking Member of the Senate Finance Committee, today outlined the impact on middle-class families if Congress does not provide financial relief from the Alternative Minimum Tax (AMT), calling on Congress to fix this “stealth tax” that ensnares more and more Americans every year.  Hatch also explained that the President’s so-called ‘Buffet Tax’ would turn into another misguided AMT.

“I believe that the AMT ought to be permanently repealed.  One reason to pursue permanent repeal is the uncertainty that the AMT creates for taxpayers when Congress must revisit and adjust it every year,” said Hatch.  “Unfortunately, a permanent fix does not appear to be forthcoming.  Congress has yet to undertake any meaningful action on the AMT.”

Hatch continued, “President Obama has proposed permanently patching, or maybe even repealing, AMT.  Yet, what he gives with one hand, he takes away with another.  He has proposed to pay for an AMT fix, with his so-called Buffett Tax.   The thing is, the Buffett tax is really nothing more than a new alternative minimum tax.  The solution to the Alternative Minimum Tax problem surely can’t be an alternative Alternative Minimum Tax.  Moreover, the revenue generated by the Buffett tax — in spite of the suggestion by the President that this tax on the rich can pay for all things good — would not come close to providing the revenue necessary to address the AMT in a meaningful way.”

Earlier this year, the White House said that the so-called ‘Buffet tax’ would be used to pay to permanently fixing the AMT, but according to the analysis by the Joint Committee on Taxation (JCT), the Buffett Rule would generate a meager $47 billion over ten years, or less than $5 billion a year -  a minute fraction of the AMT that would lose revenue of $864 billion just to patch for ten years, according to the JCT.

Enacted in 1969 to force the very wealthiest taxpayers to stop avoiding paying their taxes, the AMT was never indexed to inflation and is now hitting more and more middle-class taxpayers.  As a result, this year, without relief, at least 27.2 million middle income families and individuals will get hit with a $92 billion tax hike.

“The AMT is a stealth tax on 27 million families,” said Hatch.  “Approximately 3.9 million families paid the AMT last year, and they may not be surprised if it hits them again this year.  But for the other 27 million American families set to be ensnared by the AMT, this represents a significant and stealthy tax increase.” 

Below is the text of Hatch’s full speech delivered on the Senate floor today:

Mr. President, last week I discussed some unfinished business that remains for Congress and the President to address.  Specifically, Congress must take up a number of tax-related matters in very short order.

When I discussed this tax agenda last week, I referred to this chart. Things have not changed since then.

As this chart shows, the tax extenders, which are overdue by almost half-a-year, are not alone on Congress’ to-do list. We need to resolve the death tax.   Death tax relief expires at the end of 2012.

We need to prevent the 2013 tax hikes. As I noted earlier, we have the so-called tax extenders.  And we have to address the Alternative Minimum Tax — or AMT — patch.

This issue of the AMT is what I would like to address today. 31 million American families will be caught by the AMT, or are already being caught. Yet Congress has done nothing to address the AMT. The AMT is a stealth tax on 27 million families.

Approximately 3.9 million families paid the AMT last year, and they may not be surprised if it hits them again this year.  But for the other 27 million American families set to be ensnared by the AMT, this represents a significant and stealthy tax increase. 

The AMT burden is, in fact, far broader than just the 31 million American families who are in its sights.

Nearly double that number — 60 million American families — must fill out the AMT worksheet to determine whether they owe AMT.  While not as bad as paying the tax itself, the task of compliance is just another time consuming government-imposed challenge for American families.

To get some idea of the magnitude of the AMT’s reach, consider this chart.  It breaks down state-by-state the number of American families hit by the AMT. 
When I speak of those now being caught by this tax, I am referring to those families who make estimated tax payments and who are scheduled to make their second payment tomorrow.

Last year, 3.9 million families were hit by the AMT.  I think this was 3.9 million too many, but it is considerably better than the more than 31.1 million who will be hit in 2012. 

The reason we are threatened by such a large increase this year is that, over the last 11 years, Congress has passed legislation to temporarily increase the amount of income exempt from the AMT.  Unlike many other provisions of the tax code, the AMT exemption amount is not automatically adjusted for inflation.

These temporary exemption increases have prevented millions of middle class American families from falling prey to the AMT, until now. 

While I have always fought for these temporary exemptions, I believe that the AMT ought to be permanently repealed.  One reason to pursue permanent repeal is the uncertainty that the AMT creates for taxpayers when Congress must revisit and adjust it every year.

Unfortunately, a permanent fix does not appear to be forthcoming.  Congress has yet to undertake any meaningful action on the AMT.  President Obama has proposed permanently patching, or maybe even repealing, AMT.  Yet, what he gives with one hand, he takes away with another.

He has proposed to pay for an AMT fix, with his so-called Buffett Tax.   The thing is, the Buffett tax is really nothing more than a new alternative minimum tax.  The solution to the Alternative Minimum Tax problem surely can’t be an alternative Alternative Minimum Tax.

Moreover, the revenue generated by the Buffett tax — in spite of the suggestion by the President that this tax on the rich can pay for all things good — would not come close to providing the revenue necessary to address the AMT in a meaningful way.

Despite assurances from the President and his allies that AMT relief is an important issue, nothing has actually been put forward as a serious legislative solution for this year.

No Senate committee markup or floor action. This year is about half over, and all we have is talk about the need to address the AMT.

But a theoretical discussion is not a substitute for real action, as anyone making a quarterly payment today will attest to.

Everyone seems to agree that something needs to be done quickly, but the discussion does not go any further from there. 

We are out of time.

The second quarterly AMT payment is due.  Today, taxpayers across the country are under a legal requirement to pay their estimated tax.  They will use the form depicted in this chart.

Though I hope otherwise, I expect that I will be here again when the third payment comes due, saying basically the same thing. 

Now, a question remains about whether people who should be making an estimated tax payment tomorrow actually will.  Most of these 31 million taxpayers subject to the AMT do not even know they are subject to the AMT.  So they will not be making that estimated tax payment tomorrow, even though they should.  And if one fails to pay sufficient estimated tax, or have a sufficient amount of wages withheld on a timely basis throughout the year, then one can be subject to interest and penalties. 

This is an awful spot for Congress to put American families in.

It is also worth recalling that the IRS cannot just flip a switch and have its systems in place for an AMT patch.  This is not done overnight.  It takes months.  And Congress’s failure to act on a timely basis could actually delay the processing of 2013 refund checks, perhaps by even a few months.

The failure of Congress to promptly enact an AMT fix would have a cascading effect on our system of tax administration.  Software providers and tax preparers would struggle to keep up.

One of the issues holding back an AMT fix is that many on the other side insist that, unlike new spending proposals or extensions of existing spending programs, AMT reform should happen only if it is revenue neutral. 

That means any revenues not collected through reform or repeal of the AMT must be offset by new taxes from somewhere else. 

Notice that I said not collected rather than lost. 

This distinction is important for the simple reason that the revenues that we do not collect as a result of AMT relief are not really lost. 

The AMT collects revenues it was never supposed to collect in the first place.  And if we offset revenues not collected as the result of AMT repeal or reform, total federal revenues, over the long-term, are projected to push through the 30-year historical average and then keep going. 
Originally conceived as a mechanism to ensure that high income taxpayers were not able to eliminate their tax liability completely, the AMT has failed.  The AMT was originally created back in 1969 with just 155 taxpayers in mind — a mechanism to ensure that high income taxpayers were not able to eliminate their tax liability completely. 

The AMT has failed completely.  On the one hand, as IRS Commissioner Everson told the Finance Committee in 2004, the same percentage of taxpayers continues to pay no federal income tax. 

On the other hand, the AMT is projected to bring in future revenues that it was never designed to collect.  At least 31 million middle class families are now in the AMT’s crosshairs.  That’s quite a change from 155 rich people.  And it should serve as a cautionary tale for those who believe that today’s tax increase proposals will remain limited to the so-called wealthy.

During the 2008 campaign, President Obama advocated for a permanent AMT patch.  His budgets have maintained that position.

While permanent repeal without offsetting the AMT is the best option, we absolutely must do something to protect taxpayers immediately, even if it involves a temporary solution such as an increase in the exemption amount. 

Of course, if we do that we are going to be in the same fix next year, and I will be making the same points again. 

This coming Friday — June 15, 2012 — taxpayers making quarterly payments are going to once again discover that the AMT is neither the subject of an academic seminar nor a future problem we can put off dealing with.

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