January 24, 1974
Page 783
Mr. KENNEDY. The purpose of the amendment is to close two of the most serious loopholes in the minimum tax; the so-called "deduction for taxes paid" and the $30,000 exemption. On the basis of figures for calendar year 1972, the amendment will generate increased tax revenues totaling $860 million.
The minimum tax is the imaginative technique enacted by Congress as part of the Tax Reform Act of 1969, in an effort to insure that all citizens with substantial income would pay at least some tax on their income, thereby ending the gross tax inequity by which thousands of wealthy taxpayers were able to use the loopholes in existing law to avoid large amounts of taxes they ought to pay, or even to avoid taxes altogether.
In effect, the minimum tax is supposed to be a "bucket under a sieve." It is designed to impose a modest tax on all income that slips otherwise untaxed through the many loopholes in the existing Revenue Code. If the minimum tax fulfills its function, no one with substantial income would be able to avoid paying a fair share of taxes on his income.
Under the present minimum tax, a person is taxed at the rate of 10 percent on the sum of his income from tax preferences, which include most, but not all, of the major tax loopholes, less a $30,000 exemption and less the amount of regular income taxes owed.
Unfortunately, the minimum tax does not adequately fulfill its function. In 1970, for example, the first full year of operation, the revenue yield was a paltry $117 million from individuals compared to an anticipated yield of $290 million when it was enacted in 1969. In 1971, the yield was little better, only $163 million from individuals.
Because of the loopholes in the minimum tax – principally the deduction for taxes paid and the $30,000 exemption – its effective rate in 1971 on individuals was only 2.6 percent, compared to the statutory rate of 10 percent, and the effective rate on corporations was only 4.8 percent. And, as a result of the loopholes in the minimum tax, 74,000 individuals, reporting tax loophole income totaling $2.2 billion, paid no minimum tax at all. Similarly, 75,000 corporations, reporting tax loophole income totaling $1.6 billion, paid no minimum tax at all.
Because of the exemptions and deductions written in at the beginning and in subsequent years, the minimum tax is itself a loophole-ridden tax – minimum in impact as well as name. As such, the minimum tax is the most aptly named provision in the tax laws. Instead of being a "bucket under a sieve," it is, instead, simply another sieve under the existing sieve.
The first of the two reforms I propose would eliminate the deduction for taxes paid. This deduction entered the revenue laws as an 11th hour Senate floor amendment to the Tax Reform Act of 1969. I opposed the amendment on the floor, but it was approved by a majority vote of the Senate.
In effect, this particular deduction has become an "executive suite" loophole, because it allows highly paid executives to use their large salaries to shelter large amounts of tax preference income against the minimum tax. But simply because a wealthy individual pays taxes on his salary just like everybody else, it does not follow that the taxes he pays should give him free entry to the "loophole club," by allowing him to amass large amounts of sheltered income, free not only from the regular tax, but free from the minimum tax as well.
Thus, the minimum tax works reasonably well in the case of individuals who pay little or no regular taxes, but it contains a gaping loophole in the case of individuals who pay substantial regular taxes. To me, there is no justification for allowing this loophole in the minimum tax to remain open. Simple tax justice requires that the minimum tax be applied even-handedly to all tax preference income. The amendment I am proposing today will achieve that result by eliminating the deduction for taxes paid.
The second reform would reduce the current $30,000 exemption from the minimum tax to $10,000. The existing exemption allows the first $30,000 in tax loophole income to escape the minimum tax altogether. I believe the current exemption is excessive, and that a level of $10,000 would eliminate much of the tax avoidance feature of the current law while insuring that the minimum tax comes into play at a reasonable level of tax preference income.
The $30,000 exemption appears to be the loophole used by President Nixon to reduce his minimum tax to zero in 1971 and 1972, and to near-zero in 1970.
According to the information available, the President filed the required IRS form 4625 for the minimum tax in all 3 years since the tax was enacted – 1970, 1971, and 1972 – since he had many thousands of dollars in tax preference income derived from preferences such as excess investment interest, accelerated depreciation, and capital gains. Yet in only 1 of those years, 1970, did the President actually pay any minimum tax, and the amount paid that year was extremely small, $792.81. In the other 2 years, in spite of his sizable tax preference income, the President was able to use the $30,000 exemption in the law to reduce his minimum tax to zero.
The attachment explains the operation of the amendment in greater detail. As noted, I believe that the arguments against minimum tax reform based on the impact on capital gains and the depletion allowance have been grossly exaggerated in the past, and are far outweighed by the importance of the reforms involved. Wall Street did not blink and the oil industry did not miss a stride when Congress enacted far more substantial changes in capital gains and oil depletion in 1969.
In sum, the recent disclosures on President Nixon's tax returns and on the low rate of taxes paid by the large oil companies make a clear and compelling case for tax reform. The most obvious place to begin is with the minimum tax.
Mr. President, this amendment is offered on behalf of myself and the Senator from Maine (Mr. MUSKIE), who has been most interested in this whole concept, the Senator from Indiana (Mr. BAYH), who has also been an extremely effective advocate of tax reform, especially in this area, and the Senator from Wisconsin (Mr. NELSON), who fought for this program in the Committee on Finance, who has offered it in the committee and on the Senate floor on other occasions, and who has worked closely with us to gain its acceptance today.
Mr. President, I ask unanimous consent to have printed in the RECORD at this point a fact sheet prepared on the amendment.
There being no objection the fact sheet prepared on the amendment was ordered to be printed in the RECORD, as follows:
AMENDMENT 920 To H.R. 8214, KENNEDY-NELSON-BAYH-MUSKIE MINIMUM TAX
AMENDMENT
PURPOSE
1. Repeal the step in the calculation of the minimum tax which currently allows a deduction for other taxes paid.
2. Reduce the current $30,000 exemption from the minimum tax to $10,000.
The proposed amendment makes no change in the tax preferences subject to the minimum tax, and no change in the current 10% rate of the minimum tax. It affects only the deduction for taxes paid and the $30,000 exemption, the most obvious loopholes in the current minimum tax. The revenue gain from both provisions would be $860 million.
CURRENT LAW
The minimum tax was enacted by Congress as part of the Tax Reform Act of 1969, in an effort to insure that persons with substantial amounts of untaxed income would pay at least a modest tax on such income. Under the present minimum tax, a person is taxed at the flat rate of 10% on the sum of his income from certain tax preferences, which include most, but not all, of the major preferences in the tax code.
But before the minimum tax is applied, a taxpayer gets two important deductions from his preference income: First, an automatic $30,000 deduction; Second, a deduction for the regular income taxes he pays. These two deductions are largely responsible for the failure of the minimum tax to fulfill its promise.
DEDUCTION FOR TAXES PAID
This deduction allows substantial numbers of taxpayers to avoid the minimum tax completely, even though they have large amounts of income from their tax loopholes. In practice, the deduction is an "Executive Suite" loophole, since one of its principal effects is to allow highly paid executives to use the large amount of regular taxes they pay on their salaries as an offset against income they receive from tax loopholes. The following examples illustrate this point.
[Table omitted]
Individual A, who has $100,000 in income from tax preferences but pays $100,000 in regular taxes on his salary, owes no minimum tax. Individual B, who has $100,000 in income from the same tax preferences, but who pays no regular taxes, owes a minimum tax of $10,000. The minimum tax should operate equally on individual A and B, yet the deduction for taxes paid lets A escape the minimum tax altogether. By closing the loophole for this deduction, the proposed amendment would insure that A pays a minimum tax on his preference income.
Contrary to arguments raised in the past against the proposal to repeal the deduction for taxes paid, this reform would have only a marginal impact on capital gains or on the percentage depletion allowance.
The effect of the change would be to increase the effective tax rate on capital gains in the highest bracket from its present level of 36.5% to 40%. But the 40% rate would apply only to that portion of capital gains over $460,000, and it is still a bargain rate compared to the 70% tax rate on ordinary income at such levels.
The change would also have the effect of reducing the oil depletion allowance from its present "effective" level of approximately 18%, but the reduction would be less than a single percentage point. At a time of rising concern over excess profits on oil, the change is obviously de minimis.
In the Tax Reform Act of 1969, the maximum effective tax rate on capital gains was increased from 25% to 36.5 %, with no measurable effect on Wall Street or the flow of capital to business.
And the same Act reduced the effective rate of the oil depletion allowance from 27½ % to 18 %, with no measurable effect on oil company profits. If Wall Street and the oil industry could take these far more substantial reforms in stride in 1969, they can easily do the same with respect to the modest reforms now proposed in the minimum tax.
THE $30,000 EXEMPTION
The second part of the amendment would reduce the existing $30,000 exemption to $10,000. The present level was set far too high by the 1969 Act. It enables wealthy taxpayers to enjoy their first $30,000 in tax loophole income completely free of the minimum tax. This was the provision used by President Nixon to reduce his minimum tax to zero in 1971 and 1972, and to near-zero in 1970.
By reducing the level to $10,000, substantial amounts of income that are currently tax-free will become subject to the minimum tax. At the same time, the $10,000 level will be high enough to prevent any substantial deleterious impact on middle-income taxpayers with modest tax preference income such as a capital gain on the sale of a home. In addition, the $10,000 level will avoid any unnecessary inconvenience in the administration of the minimum tax, since it will not require the forms to be filed or the tax to be paid on modest amounts of tax preference income.
MAJOR TAX PREFERENCES SUBJECT TO MINIMUM TAX
Accelerated depreciation on real property, accelerated depreciation on personal property subject to a net lease, amortization of certified pollution control facilities, amortization of railroad rolling stock, stock options, reserves for losses on bad debts of financial institutions, depletion, capital gains, and amortization of on-the-job training and child care facilities.
MAJOR TAX PREFERENCES NOT SUBJECT TO MINIMUM TAX
Interest on state and local government bonds, intangible drilling and development expenses, interest and taxes during construction period of real estate, investment credit, gain on property transferred at death, gain on appreciated property given to charity.
EFFECT OF CURRENT LOOPHOLES
Individuals. – In 1971, 24,000 individuals paid $163 million in minimum tax on loophole income of $3.9 billion, for an effective tax rate of 4.1%.
But 74,000 other individuals paid no minimum tax at all on loophole income of $2.2 billion.
Thus, the overall effective rate of the minimum tax on individuals is 2.0%, compared to the statutory rate of 10%.
Corporations. – In 1970, 6,000 corporations paid $280 million in minimum tax on loophole income of $4.1 billion, for an effective rate of 6.7%.
But, 75,000 corporations paid no minimum tax at all on loophole income of $1.6 billion. Thus, the overall effective rate of the minimum tax on corporations is about 4.8%.
REVENUE GAIN FROM PROPOSED AMENDMENT
[Tables omitted]
Mr. MUSKIE addressed the Chair.
The PRESIDING OFFICER. The Senate will be in order. The Senator from Maine is recognized.
Mr. MUSKIE. Mr. President, I am delighted to join again with the distinguished Senator from Massachusetts in support of this amendment, also cosponsored by Senators BAYH, NELSON, STEVENSON, INOUYE, HUMPHREY, HASKELL, and MCINTYRE. Twice last year we presented a similar amendment and we were defeated on both occasions by narrow margins.
Since then a great deal has happened to emphasize the burdens of taxation on important segments of our society, so I hope that today we will have the support of the majority of the Senate for this important needed reform of minimum tax.
The Senator from Massachusetts has given us some of the background for this so-called minimum tax. I would like to reemphasize some points he has made and add a few more.
Many tax shelters and tax preferences now serve to protect these with high incomes from paying their fair share of our tax burdens. Complicated tax dodges beyond the reach of most Americans give esoteric relief to the wealthy – gimmicky investments sold for their ability to defer and decrease normal taxes.
Unjustified shelters and preferences create a tax system which is fundamentally unfair.
Preferences and shelters allow some of the richest Americans to pay little or no tax.
Unfair preferences and shelters create a tax system which is deceptive, transforming what were intended to be fair and reasonable progressive tax rates for the high income into an effective rate of about 30 percent for individuals with incomes of $100,000 and more.
And unfair preferences and shelters add insult to the tax burden of low and middle income Americans: Those with incomes under $20,000, who pay the majority of personal income taxes to the Federal Treasury.
Taxes are a weighty burden on the vast majority of Americans whose only source of income is their weekly wage, or the earnings of their stores, workshops, or farms. Americans saw their livelihood eaten away last year by a 9-percent overall cost-of-living increase, including a 22-percent increase in food prices, and now astronomical rises in gasoline and heating bills. The result last year was a 3-percent reduction in real income for the average working American. Most Americans caught in this squeeze axe rightly demanding that the burden of Federal income taxes must be borne fairly.
Solution of tax injustice will require thorough tax reform. I have proposed a comprehensive Tax Reform Act, S. 1439, with the cosponsorship of Senators BAYH, HASKELL, HUGHES, PASTORE, and TUNNEY. My bill would produce $18 billion in new Federal revenues, without increasing the burdens on low- and middle-income Americans. I am hopeful that Congress will devote the attention necessary to produce comprehensive tax reform along these lines before the end of 1974. Today is not the time to take that comprehensive step but we can take the first step toward that goal by strengthening the minimum tax, which goes to the heart of existing tax inequities.
Under current law, the minimum tax applies to nine items of tax preference: first, accelerated depreciation on real property; second, accelerated depreciation on net leased personal property; third, stock options; fourth, depletion allowances; fifth, capital gains; Sixth, special amortization of pollution control facilities; seventh, special amortization of railroad rolling stock; eighth, bad debt reserves for financial institutions; and ninth, special amortization for job training and child care facilities.
A reading of these nine items includes some which are designed to achieve some worthy objectives, and some which are less deserving. But the existence of these preferences makes it possible for many wealthy Americans to escape substantial taxation – or any taxation at all. The purpose of the minimum tax is to achieve a reasonable balance between the objectives to be served, and fair taxation.
The minimum tax, at a rate of 10 percent, is imposed on these items of preferential income, with three deductions allowed: a $30,000 exclusion; the deduction of all Federal taxes paid in the current year; and the carryforward of any excess of the Federal tax deductions from the 7 previous years.
Our amendment would strengthen the minimum tax by applying it to preference income now protected by the deduction for regular Federal taxes paid, and by a large part of the $30,000 exemption. By making these two changes, the amendment would raise a total of $855 million in revenue at 1972 income levels.
The first part of our amendment would repeal the deduction allowed for "regular" Federal taxes paid, and thus also repeal the carryover of that deduction.
By taking advantage of this deduction, taxpayers can shelter tax preference income to the extent that they pay Federal taxes on non-preference income. Although this provision has no basis in logic, it effectively shields many taxpayers, such as those with high salaries and thus high regular income taxes, from paying the minimum tax.
Our amendment would further strengthen the minimum tax by reducing from $30,000 to $10,000 the exemption allowed before the minimum tax takes effect. A $10,000 exemption would suffice to minimize any extra administrative burden of the minimum tax, as well as any burden it might impose on middle- or low-income taxpayers. But it would impose the moderate minimum tax on millions of dollars of tax preference income which goes primarily to the wealthy.
The object – and effect – of this amendment is to put us back on the road toward fairness in taxation. It would not perfect the tax code. Retrieving the bulk of the revenue lost through unjustified specific preferences can only be accomplished in a comprehensive tax reform measure. But strengthening the minimum tax would bring us closer to tax equality by narrowing the escape hatches for the wealthy.
The effect of the amendment on all but the very rich would be minuscule. The average individual taxpayer with income of $50,000 or less now receives tax benefits from the depletion allowance, for instance, of only $1.81, and from the capital gains provision of only $31.62. It would be those taxpayers with incomes over $100,000 – who now reap the majority of benefits under these provisions – whose tax bills would be increased to reflect their fair share.
Our minimum tax reform amendment would be a first step toward tax justice.
I think it is appropriate to make another observation on the basic principle of fairness, with which this amendment is concerned. I had the privilege in Boston recently of conducting hearings, with the distinguished Senator from Massachusetts, on the impact of the rapidly escalating costs of energy upon various segments of our society.
It was clear from the testimony we received that the burden of the shortage has descended the economic ladder to the bottom rungs in three important ways.
First of all, with respect to supply: Those who are least able to pay for energy, who are least able to afford it, are most restricted by the shortage.
Second, with respect to price–
Mr. KENNEDY. Mr. President, will the Senator yield without losing his right to the floor?
Mr. MUSKIE. I yield.
Mr. KENNEDY. Mr. President, I ask for the yeas and nays.
The yeas and nays were ordered.
Mr. MUSKIE. Mr. President, second, with respect to price, New England has done a good job of conserving energy this winter. Overall, I think in addition to what has been saved because of a warmer winter, we have saved 17 percent in the consumption of energy. But interestingly, in the relatively high-income areas of southern New England, that saving is on the order of 12 percent. In the relatively low-income areas of northern New England, the saving is on the order of 18 percent.
In other words, we are in effect imposing rationing by income levels because of the enormously escalating price of energy. And so, in a second way, the burden of the shortage has descended the economic ladder to those who are least able to bear it.
And third, with respect to credit, enormously increasing costs have imposed working capital problems upon the small distributor and the small businessman who serves the home heating needs of the average citizen. Because credit terms made available to him have been restricted at the top of the ladder of distribution, he has had to restrict the credit terms that he traditionally gives to the poorest consumers.
So in those three ways, the burden of the present shortage has dropped to the bottom of the ladder.
Mr. President, and I detect – and I suspect all of my colleagues do – the feeling among our people that the whole system is inequitable, unfair, that it discriminates against those at the bottom of the ladder, and that it is exploited by those at the top of the ladder for their own benefit. This feeling is more pervasive than at any time I can recall in my political life of 25 years. And it is directed to the unfairness of the tax code as well.
Now, our amendment is a concrete way in which we can begin to redress the injustice of the tax system. I urge my colleagues to support this amendment.
I yield the floor.
Mr. THURMOND. Mr. President, I ask unanimous consent that Mr. Stanley Hackett, a member of my staff, be allowed on the floor during the discussion of this matter.
The PRESIDING OFFICER. Without objection, it is so ordered.
Mr. BENNETT. Mr. President, there is no question that there is a problem with our present minimum tax proposal. We have been forced to listen to horrible examples of people with very high income who have escaped taxation completely. One could make a great demagogic charge of that, realizing that those people are using the same deductions that are available, in most cases, to everybody else. And I think we should give very careful consideration to an amendment of our present minimum tax law.
But in the spirit of the debate of yesterday, suggesting that it was unfair to come in here and present committee amendments that had not had hearings, we are now asked to make a tremendous change, a basic change, in our income tax system without even having had the opportunity in the committee to consider this change.
Mr. KENNEDY. Mr. President, will the Senator yield at that point?
Mr. BENNETT. I yield.
Mr. KENNEDY. What the Senator has said is really not accurate. This question of the minimum tax was considered by the Finance Committee and accepted by the Finance Committee in 1969.
Extensive hearings were held. Then the committee acquiesced in the 11th hour change on the Senate floor, an amendment by, the former Senator from Iowa, Mr. Miller, which opened up this serious loophole. This loophole was not created in the Finance Committee; it was created here on the floor, over the opposition of myself and a few other Members of the Senate.
All we are trying to do is go back to what the Finance Committee did in principle in 1969. What we are doing is conforming the bill to what the Finance Committee did in 1969. The only difference is that in 1969 the tax rate was 5 percent. It was changed to 10 percent on the Senate floor.
Mr. BENNETT. Mr. President, I think the Senator has given me a perfect example of what I am trying to say. We legislated on the floor in 1969 and made an error because we did not have the opportunity to examine all the possibilities. This is not the 1969 proposal. It has been changed again, a little here and a little there. I think the Finance Committee should have the opportunity again, in view of the difference in the economic situation between 1969 and 1974, about which much was made when we were discussing the last amendment, to look at the basic problem, and not again legislate on the floor, with the chance of again making a very serious mistake.
This amendment does not solve the problem of a high income taxpayer who avoids taxes. Under this amendment, he would continue to avoid taxes. However, it puts an additional tax on the back of the income taxpayer whose tax preference income is higher than $10,000.
It would get right down into the income of the ordinary taxpayer who is already paying most of the burden.
The principal effect of the amendment would not at all affect the high income persons who are not now paying any taxes. And they are the people we are trying to get at with a minimum income tax.
The amendment would not increase the income tax liability of anyone who pays no tax.
However, it would very substantially affect a large number of middle and lower income people who are already paying a substantial income tax.
The so-called minimum tax would become a disguised surcharge on certain items of income and deductions. It would increase the top effective rate of tax on individuals' capital gains from 36.5 to 40 percent.
About 85 percent of the present tax paid by individuals is on capital gains. That is now being paid by individuals, and not all of them are rich individuals.
For corporations, it reduces the rate of percentage of depletion on oil from 22 to 17.4 percent. Over half of the present minimum tax paid by corporations is attributable to depletion. Similar or greater reductions would be for individuals.
We are in the middle, as everyone in the country knows, of an oil crisis. We are all suffering because there is not enough oil to provide the energy that we need to run our cars, heat our homes, and supply feed stock and our manufacturing plants.
Maybe in the end it would be wise to reduce or to eliminate the oil depletion. That seems to be an easy answer, to punish the oil companies who suddenly find themselves in a better profit position than they did a year of two ago.
However, if we are going to solve the problem, we have to increase production. We have to have some kind of incentives to increase production. If we are going to do that, perhaps, the depletion allowance ought to be reduced. Maybe we should have an alternative suggestion. The President has made a recommendation and other Members of the Senate have made recommendations for shifting the tax burden to the oil industry and hopefully to increase the incentives. But to take this singlehanded action without any hearings or without consideration of other alternatives at this time when half a dozen committees of the Senate are studying the oil problem seems to me to be very shortsighted.
And I think that solving the energy crisis should be considered as part of the overall program.
As I have said, both Houses are now actively examining this question. I do not think that this shot in the dark will aid in its thoughtful solution.
In a time of inflation and rising costs changes in the taxation of capital investment should reflect congressional consideration of their impact on the availability of capital and savings.
The administration has proposed a new form of minimum tax which it hopes will solve the high income tax problem, which this amendment does not address directly.
This and other solutions should be carefully considered instead of handling them on the floor with no real consideration by any member of the committee or of the Congress.
The amendment would introduce unwarranted complexity for low and middle income families.
For example:
(1) 15% of the individuals affected would have adjusted gross incomes of less than $15,000.
(ii) 29% of the individuals affected would have adjusted gross incomes of less than $20,000.
(iii) 65% of the individuals affected would have adjusted gross incomes of less than $50,000.
Mr. KENNEDY. Mr. President, will the Senator yield at that point?
Mr. BENNETT. I yield.
Mr. KENNEDY. Mr. President, I listened to the Senator earlier describe the figures concerning who would be affected. I do not recognize the amendment that the Senator described.
Who are the low-income people who have accelerated depreciation on real property? Who are the ones who have accelerated depreciation on personal property subject to a net lease, or amortization of certified pollution control facilities, or amortization of railroad rolling stock, or stock options? Do they sound like low-income people? They do not. It is the low-income people who are suffering from the unfair tax burden the law requires today. The Senator from Utah has the responsibility to use figures that tell the story fairly.
Mr. BENNETT. The figures I have cited were given by the Treasury. I cannot think of any fairer source of figures.
The figures the Senator from Massachusetts is using are apparently based on the theory that those kinds of deductions are the only ones involved. There are many individuals in the low-income range who are involved in percentage depletion. The Treasury says that of the individuals affected by this amendment, 15 percent have incomes under $15,000; 29 percent have incomes under $20,000; and 65 percent, or approximately two-thirds, have adjusted gross incomes of less than $50,000.
So this is not the way to handle the problem. This amendment does not reach the man who pays no taxes, but it puts a surcharge on many of the individuals in tax brackets from $15,000 to $50,000. They are the ones who are carrying the heaviest burden now.
I think the amendment should be rejected. It should be rejected with the understanding, which, as a member of the Committee on Finance, I am sure I can give to the Senator from Massachusetts, that the whole question of the impact of taxation on our present problems is going to be given the most serious consideration by the Committee on Ways and Means and the Committee on Finance.
I think that if the Senator from Massachusetts would like to have hearings on his proposal, the Committee on Finance would be very glad to oblige him. I do not think we should be legislating a major change of this kind on the floor of the Senate without having had a chance, really, to explore other possibilities. The very fact that the Senator from Utah has one set of figures and the Senator from Massachusetts has another is ample evidence to the Senator from Utah that we need reasoned hearings, based on prepared studies of the problem. We should not attempt to legislate this kind of program at this time in the afternoon when most Senators are not in the Chamber. Most Senators are unaware of the depth of the problem or its extent or its effect on middle- income taxpayers.
Mr. KENNEDY. The figures I am using are also Treasury figures. The point the Senator from Utah cannot get around is that in order to be required to pay a minimum tax, it is necessary for a taxpayer today to have more than $30,000 in tax preference income.
I wonder how many low-income elderly or blue-collar workers are going to have more than $30,000 in preference income in areas like accelerated depreciation on real property or personal property, or amortization of railroad rolling stock. They will have to have tax preferences in those areas, and the preferences will have to exceed $30,000, before they may be required to pay a minimum tax.
Let me point out one final thing. When we are talking about adjusted gross income levels, we are not telling the whole story either. You can be sure that a taxpayer whose adjusted gross income is $5,000 and who is paying a minimum tax today is using loopholes in the tax laws to keep his adjusted gross income down, so he pays less in regular taxes. Adjusted gross income figures can be extremely misleading, because they may conceal enormous tax preferences, especially in oil tax area.
Mr. President, for the record, I ask unanimous consent that a breakdown of the amendment by income groups may be printed in the RECORD.
There being no objection, the tables were ordered to be printed in the RECORD, as follows:
DISTRIBUTION OF GAIN FROM INDIVIDUALS (1972 INCOME LEVELS)
[Tables omitted]
Mr. BENNETT. The Senator from Utah is confused. I carefully checked with the desk, and understand the Senator's amendment reduces that preference income from $30,000 to $10,000.
Mr. KENNEDY. The Senator is correct.
Mr. BENNETT. All right.
Mr. KENNEDY. The Senator is quite correct.
Mr. BENNETT. The Senator from Massachusetts says that in order to get involved in this, the taxpayer has to have–
Mr. KENNEDY. Under this amendment we would reduce the exemption in the minimum tax from $30,000 to $10,000. What it means is that the blue collar worker has to have $10,000 in tax preference income before he could even start to owe a minimum tax.
Mr. BENNETT. I wanted the Senator to say that because in his previous statement, made about 5 minutes ago, he talked about $30,000.
Mr. KENNEDY. That is the way it is now. That is the way it is at the present time, and we want to change it.
Mr. BENNETT. Then you cannot– well, there is no use arguing the misunderstanding between us, but it is perfectly clear to me that as the Senator talked, he was talking about his amendment and not the present law, and I am glad to straighten it out that the Senator's amendment reduces the amount of tax preference income necessary to qualify from $30,000 to $10,000.
Mr. MUSKIE. Mr. President, just a moment or two to cover several points raised by the Senator from Utah in a different way.
First of all, I am curious that the Senator says he had no warning as to this amendment, and yet he has given us Treasury figures as to its impact. He obviously had enough time to get the Treasury's evaluation of the impact of this amendment, and that puts his complaint in some perspective.Second, the Senator from Massachusetts and I sent every Member of the Senate a letter dated December 14 of last year, putting every Senator on notice that we would offer this amendment to this very bill. So there has been at least 5 weeks' notice, to all Senators. If the Senator from Utah reads his mail from Democratic Senators, he has been awareof this since December 14. With respect to the impact on low-income groups, I think it is ridiculous to suggest, from reading the preferences that are covered, that there is any significant impact from this amendment on the low-income taxpayer in this country.
I am not going to belabor that point, but let me read from the table placed in this RECORD last year of the benefits in each adjusted gross income class of the preferences about which we are talking.
Let us take the oil depletion allowance, which the Senator from Utah would now have us believe protects the low-income taxpayer in this country. I read from the table on page 41563 of the CONGRESSIONAL RECORD for last year, which is based on figures prepared by the Treasury Department and the Joint Committee on Internal Revenue Taxation.
For those who have an income up to $3,000, the benefit is 6 cents per person. From $3,000 to $5,000, the benefit is 50 cents. From $5,000 to $7,000, 45 cents. From $7,000 to $10,000, 87 cents.
When you get up to $10,000 and over, the benefit rises to $1,150.23.
The argument, I think, is ridiculous on its face. I would enjoy hearing the reaction of any group of citizens in my State to the Senator from Utah, if he were to make the argument anywhere in my State, that the average citizen, who is now paying exorbitant prices for heating oil, could offset against the oil depletion allowance benefits he receives. I am surprised that the Senator would make such an argument.
Mr. BENNETT. The Senator from Maine should realize that, when you argue national averages, you get the kind of figure he gets. But buried in that national average is a substantial number – I do not know how many, because we do not have that kind of people in Utah; we do not have private holders of oil lands–
Mr. MUSKIE. Let me say to the Senator, I understand what–
Mr. BENNETT. Will the Senator let me finish? I have the floor.
Mr. MUSKIE. When you take a penny or two from each taxpayer–
Mr. BENNETT. Mr. President, who has the floor?
Mr. MUSKIE. Well, it is on my time, but I will be glad to let the Senator finish.
The PRESIDING OFFICER. The Senator from Utah.
Mr. BENNETT. Buried in that figure are various individuals of fairly low income who are going to be hurt. We have heard a lot in the last few days about the value of opening up the stripper wells which are producing only 10 to 18 barrels of oil a day. Some of those are owned by people of fairly low income. But, of course, when you bury them in 100 million people, you get a figure like 5 or 6 cents. That is the weakness of arguing from averages.
Mr. MUSKIE. Let me try another one on the Senator. The impact of this amendment on the oil depletion allowance is a decrease of at most 1 percent. Is that the group the Senator has in mind?
Mr. BENNETT. That is still arguing the average, and I am concerned about the individual taxpayers.
Mr. MUSKIE. May I say to the Senator, I prefer my generalization, which assumes that the bulk of the benefit of these preferences goes to taxpayers with incomes of $100,000 or more, to the Senator's generalization, which says the benefit is to those at the bottom of the ladder. As between those two generalizations, I think the record supports that of the Senator from Maine.
Mr. BUCKLEY. Mr. President, once again, Mr. President, I find myself compelled to vote against an amendment of which I generally favor because it has not been subjected to the scrutiny of the Finance Committee. It is my understanding, after discussion with two members of that committee, that the Kennedy-Muskie amendment has a significant indirect impact on other tax provisions that requires more study than is possible in a few moments of debate before a largely empty Chamber.
The PRESIDING OFFICER (Mr. DOMENICI). The question is on agreeing to the amendment of the Senator from Massachusetts. On this question the yeas and nays have been ordered, and the clerk will call the roll.
The second assistant legislative clerk called the roll.
The result was announced – yeas 47, nays 32, as follows:
[Roll call vote tabulation omitted]
So Mr. KENNEDY's amendment (No. 920) was agreed to.
Mr. KENNEDY. Mr. President, I move to reconsider the vote by which the amendment was agreed to.
Mr. MUSKIE. I move to lay that motion on the table.
The motion to lay on the table was agreed to.
Mr. LONG. Mr. President, last year, the Committee on Finance reported to the Senate H.R. 8214, a revenue measure involving a revenue loss from present low of approximately $22 million.
The way this bill stands now, the Government would lose about $6 billion net this calendar year. It would gain about $900 million and would lose about $7 billion.
It is obvious that the Senate is in a mood that it wants to think in terms of a tax reform bill. We have other amendments to be offered, involving billions of dollars. Those matters should at least be dignified by some consideration in hearings, where those in favor of them as well as those who oppose them could make their views known.
Therefore, I move that the bill be recommitted to the Committee on Finance.
Mr. KENNEDY. Mr. President, I indicated yesterday that there were a number of provisions giving special tax benefits that were added to this measure. I felt they had not been adequately considered. I think a number of other Members – the distinguished Senator from Wisconsin and the distinguished Senator from Maine (Mr. HATHAWAY), raised a number of very valid and worthwhile questions on these various provisions. Many of us felt these provisions could establish a very dangerous precedent in the tax code. We were unable to find out who the beneficiaries of these special provisions were. Although we received some information as to the impact on the Treasury, I thought it was quite incomplete.
At the beginning, I was prepared myself to offer a motion to recommit. Since that time, a number of changes have been made in the bill. One objectionable provision was deleted. This afternoon, the Senate has approved two extremely important and vital policy matters, in increasing the personal tax exemption to $850, to provide some relief to millions of taxpayers and to stimulate the economy; and now we have just taken an extremely important step in providing tax equity, by reforming the minimum tax and closing perhaps the largest loophole in the Federal Tax Code.
There has been very strong support by the Senate for both of these amendments. If held in the conference – and I believe the overwhelming majority of the Members of the House of Representatives would support these programs – they could mean some dramatic relief to the middle-income people and those who are paying heavy taxes at this time. And it would make an extremely important contribution toward our economic policy, hopefully by staving off a recession.
So I am extremely hopeful, Mr. President, that the motion by the distinguished chairman of the Committee on Finance will not be adopted. I realize the prerogative of the chairman of a committee to make this motion. I hope the strong actions we have taken on these matters, which are of vital importance to the people of this country, will not be sidetracked by recommitting the bill to the committee. I will not make a motion to table. I think the chairman is entitled to make this motion, but I hope it will be defeated.
Mr. President, I ask for the yeas and nays.
The yeas and nays were ordered.
Mr. GRIFFIN. Mr. President, I suggest the absence of a quorum.
The PRESIDING OFFICER. The clerk will call the roll.
The legislative clerk proceeded to call the roll.
Mr. LONG. Mr. President, I ask unanimous consent that the order for the quorum call be rescinded.
The PRESIDING OFFICER (Mr. CHILES). Without objection, it is so ordered.
The question is on agreeing to the motion of the Senator from Louisiana (Mr. LONG) to recommit. The yeas and nays have been ordered, and the clerk will call the roll.
The legislative clerk called the roll.
The result was announced – yeas 48, nays 27, as follows:
[Roll call vote tabulation omitted]