March 14, 2007


By Senator Mike Crapo

As April 17 approaches, some might be scrambling to file 2006 taxes. As liabilities or refunds are calculated, three important tax reform issues bear consideration. Thankfully, Alternative Minimum Tax (AMT) limits and 15 percent rates on capital gains and dividends remain in effect temporarily. But, the future of these important tax reductions is in jeopardy if Congress doesn't act now to permanently fix the AMT and extend the 15 percent cap on tax rates for capital gains and dividends. Often, Congressional tax debate centers on perceived gain by wealthy taxpayers; all too infrequently, positive effects on middle class taxpayers make headlines. Statistics indicate that 33 percent of eligible taxpayers don't incur income tax liability: in 2004, in Idaho, of 205,000 returns with zero tax liability, 199,000 reported an AGI of less than $50,000. The National Taxpayer Advocate office reported some alarming 2005 Idaho tax statistics:AMTâ?¢ 9,798 tax returns were subject to the AMT. Of these:â?¢ Sixteen reported Adjusted Gross Incomes (AGI) between $20,000 and $30,000;â?¢ Fifty-three had AGIs between $30,000 and $50,000.â?¢ Only 172 taxpayers had an AGI of over $1 millionâ??the only ones for whom the tax was originally established in 1969.â?¢ 318 taxpayers with AGIs under $75,000 were subject to the AMT and paid a total of $488,000 in AMT taxes.Capital Gainsâ?¢ 114,068 tax returns reported capital gains income:â?¢ 3,450 had an AGI of $0 or less;â?¢ 74,950 had an AGI of less than $75,000.Dividendsâ?¢ 116,963 tax returns reported dividend income:â?¢ 2,422 had an AGI of $0 or less;â?¢ 78,589 had an AGI of less than $75,000.We're witnessing exponential AMT growth. In 2006, 3.5 million taxpayers are expected to owe taxes under this alternative tax structure. In 2007, the AMT could affect 23 million taxpayers. The AMT isn't indexed for inflation and, although it's been "fixed" temporarily, a long-term solution hasn't been implemented. For a number of years, I've co-sponsored legislation to repeal this increasingly onerous and unfair tax. Frankly, I was surprised at the opposition to this in the past, and hope that, as this tax has the effect that has been predicted for some time, opposition to repealing it will fade. Similarly, legislation I've introduced for two Congresses now, calling for permanence in the 2003 rate reductions on capital gains and dividends, only makes sense and must be passed this year. Like the AMT, every year we wait means more revenue off-setting challenges for Congress to solve. In 2006, the 15 percent tax rate on capital gains was extended to 2010, but not beyond. The 15 percent tax rate on dividends only continues through 2008 (five percent through 2007 and zero percent from 2008-2010 for those in the 15 percent and below tax bracket). Capital gains taxes can discourage saving and investment by businesses and individuals, and dividend taxes are essentially a double tax. Today, middle income Americans tend to be stockholders--nearly half of all taxpayers with incomes below $50,000 receive dividends or report capital gains. These people benefit from tax relief on these income generators. Tax relief generates economic growth across all income levels. Specifically, tax relief from the unfair burden of the AMT, and lower rates on capital gains and dividends will continue to stimulate our economy and help keep financial markets more stable. Effective tax relief must remain in place, not just this year and next, but for years to come.WORD COUNT: 575