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Taxes
Making Tax Cuts Permanent
* Alternative
Minimum Tax (AMT) * Estate
Tax * Capitol Gains and Dividend
Tax Cuts * Taxing Carried
Interest * Tax Relief Act
of 2001 * Additional Information
on Budget and Tax Issues *
Making Tax Cuts Permanent
With the exception of the estate tax, I support permanently
extending the Tax Relief Act of 2001 and the Jobs and Growth
Tax Relief Act of 2003. I believe that before we take this
action, however, Congress needs to control spending, in both
discretionary and mandatory categories.
I don't believe we need to rush to extend tax relief that
is set to expire in 2011, particularly while our country continues
to run a deficit and with our armed forces engaged in two
major operations in Afghanistan and Iraq.
I have voted in the past to make the tax relief permanent,
and I have voted to permanently lower the estate tax to a
more reasonable rate.
Alternative Minimum Tax (AMT)
I cosponsored H.R.
1366, the Individual AMT Repeal Act. This legislation,
which has 60 cosponsors, would repeal the AMT immediately.
While I have concerns the revenue loss would need to be made
up in other ways, it is clear to me that this tax is a significant
burden on many individuals, particularly in the middle class.
I will continue working to eliminate the AMT in the 110th
Congress.
According to a 2007 study by the Tax Foundation, Connecticut's
Fourth Congressional District is the 7th most affected by
the AMT. Over 10 percent of our residents' tax returns are
subject to the AMT, and the average tax liability of those
affected by it is $5,235 per return.
The combined effects of inflation and the changes to the
regular income tax contained in the Tax Relief Act of 2001
and the Jobs and Growth Tax Relief Act of 2003 have increased
concern about the expanding impact of the alternative minimum
tax. It is now estimated that if no changes are made, the
number of taxpayers subject to the AMT will increase from
1.8 million in 2001 to 41 million by 2013. The bottom line
is we cannot allow this to happen.
Estate Tax
Because the estate tax has had a harmful effect on small
businesses -- many of which are forced to liquidate assets
simply to pay taxes ranging from 35 to 55 percent of the value
of the business -- I think we need to address this issue.
I have introduced bipartisan legislation, H.R.
3170, legislation to lower the capital gains
and estate tax. This bill would permanently reduce the Capital
Gains tax to 15 percent and phase out the flat 55 percent
Estate tax rate, replacing it with two lower tax brackets:
15 percent for estates valued below $25 million, and 30 percent
for estates valued above $25 million. Estates valued under
$5 million would be exempt from taxes.
Capitol Gains and Dividend Tax
Cuts
On May 10, 2006, I voted for the conference report to H.R.
4297, the Tax Increase Prevention and Reconciliation Act,
which passed the House by a vote of 244 to 185 and
the President signed into law on May 17. This legislation
maintained current tax law by extending the capital gains
and dividend tax cut until 2010 and extended the exemption
for paying the alternative minimum tax so millions of middle-class
Americans won't be forced to pay higher taxes.
Taxing Carried Interest
I do not support treating carried interest as ordinary income
because it is not ordinary income, and believe its current
characterization as a capital gain is appropriate.
When private equity or hedge funds turn a profit, general
partners in these funds are compensated with a portion of
the fund's profits, which is the portion known as "carried
interest." This compensation is taxed at the capital
gains rate, which is currently 15 percent, because the compensation
is for growth of an investment, rather than compensation for
services.
These managers also receive a fixed fee for management services,
which is generally a percentage of the fund's total investment.
This income is treated -- appropriately -- as ordinary income.
You may be interested to know I voted against the House version
of H.R.
3996, the Tax Increase Prevention Act, in part
because it would require carried interest to be treated as
ordinary income, and would be taxed at a rate of 35 percent.
This legislation passed the House by a vote of 216 to 193,
but the "carried interest" provisions were taken
out in the conference report.
Because the U.S. competes in a global economy, where there
is competition in tax law to attract investment, I think it
is worth noting that Austria, Czech Republic, Denmark, Estonia,
France, Greece, Ireland, Italy, Luxembourg, Norway, Spain,
Sweden, and the United Kingdom all treat carried interest
as a capital gain.
Tax Relief Act of 2001
I strongly supported the tax reduction plan passed by Congress
in 2001. This plan is fiscally responsible and the right thing
to do, both for our nation and for the state of Connecticut.
It is a well-balanced approach that is fair to all taxpayers.
This legislation contains many of the provisions proposed
by President Bush, including across-the-board income tax cuts,
marriage penalty and estate tax repeal, and a doubling of
the child tax credit. It is modest in size and contains a
number of provisions favored by Democrats and Republicans
in Congress, including immediate refunds, making the child
tax credit refundable for low-income workers, increasing the
contribution limits for individual retirements accounts (IRAs)
and 401(k) pension plans, and making college tuition payments
tax-deductible.
The following is an explanation of the different provisions
contained in the Taxpayer Relief Act. The one area of the
plan with which I differed somewhat was that I preferred substantially
reducing -- but not entirely eliminating -- estate and gift
taxes. Taken as a whole, however, this is an excellent plan
and I was happy to support it.
Income tax cuts. The legislation provides immediate
tax relief by reducing the 15 percent tax rate on the first
$6,000 of taxable income ($12,000 for married couples) to
10 percent. It also ultimately replaces the current tax rates
of 15, 28, 31, 36, and 39.6 percent with a rate structure
of 10, 15, 25, 28, 33 and 35 percent.
This plan benefits every American worker who pays federal
income taxes. It is certainly true those who pay more in taxes
receive a larger overall tax cut. Few people realize the top
5 percent of taxpayers pay more than 50 percent of personal
income taxes, and the top 50 percent of taxpayers pay 96 percent.
That's a very progressive tax system, and the President's
tax plan will make the tax code even more progressive. As
a percentage, workers on the lower end of the income scale
would see the steepest tax cuts. Furthermore, under this legislation,
six million of the poorest working Americans would be entirely
removed from the tax rolls.
Tax refunds. Under the Tax Relief Act, refund checks
were mailed in the summer of 2001 to every individual who
paid federal income taxes. Single taxpayers received up to
$300, single parents received up to $500, and married couples
received up to $600.
IRAs and retirement savings. The Tax Relief Act contains
most of the provisions of the Portman-Cardin Comprehensive
Retirement Security and Pension Reform Act, of which I was
an original cosponsor, and which passed the House by an overwhelming
bipartisan vote of 407 to 24 back on May 2.
These provisions will help Americans save for retirement
by making it easier for small businesses to offer retirement
plans. Most important, the legislation increases the current
IRA contribution limit of $2,000 per year to $5,000, and then
indexes the contribution limits for inflation (the current
$2,000 contribution limit has not been increased since 1981).
This section of the Tax Relief Act also increases annual contribution
limits to 401(k) pension plans from $10,500 to $15,000.
Child tax credit. The Tax Relief Act doubles the child
tax credit from $500 to $1,000. It also permits low-income
families that have no income tax liability to qualify for
the credit. Doubling the child tax credit will benefit lower-
and middle-income families the most.
Marriage tax penalty. The Tax Relief Act addresses
a quirk in the tax code that results in millions of married
couples paying higher taxes than they would if they were single.
The marriage penalty is particularly hard-hitting for people
at income levels between $20,000 and $75,000. According to
the nonpartisan Congressional Budget Office, an average couple's
overpayment totals $1,400 per year.
In my judgment, the tax code should not impose an extra financial
burden on married couples. Twenty-five million couples who
now pay more than they should will no longer be penalized
because of this legislation.
Estate taxes. The Tax Relief Act phases-out estate
and generation-skipping taxes. Because estate and gift taxes
have had devastating effects on small businesses and farms
-- many are forced to liquidate assets simply to pay taxes
as high as 55 percent of the value of the business -- I believe
we need to provide significant relief in this area.
I believe reducing estate taxes would have been more fiscally
prudent than abolishing this tax. Full repeal will reduce
revenues by nearly $60 billion by the tenth year of the President's
plan. This limits our ability to reduce taxes in other important
areas like capital gains.
Education. The Tax Relief Act raises the amount that
can be contributed to an education savings account (ESA) from
$500 to $2,000 and allows these accounts to be used on K-12
expenses. (Money saved in an ESA is not taxed as income, similar
to the tax treatment of IRAs.)
The legislation also makes distributions from pre-paid college
savings plans and tuition plans tax-free, and provides above-the-line
deductions for higher education expenses. It eliminates the
60-month limitation on the deductibility of student loan interest
and increases the income phase-out ranges for this deductibility.
Finally, the Tax Relief Act provides preferential treatment
for the issuance of governmental bonds used to finance school
construction.
Adoptions. I was an original cosponsor of the Hope
for Children Act, which doubles the adoption tax credit from
$5,000 to $10,000. This legislation passed the House by a
vote of 420 to 0 and was included in the Tax Relief Act.
Holocaust survivors. The Tax Relief Act excludes payments
made to Holocaust survivors from gross income.
When you consider the specific provisions of the Tax Relief
Act, I hope you'll agree it is a sensible, balanced approach.
For me, tax relief was a philosophical debate over the future
of our country. Do we want to jeopardize our current prosperity
by increasing the size of government, or do we allow taxpayers
to make decisions for themselves?
I also approached this debate from the viewpoint of Connecticut
residents. Studies by the independent Tax Foundation, the
Northeast-Midwest Institute, and Harvard University's School
of Government all found the same thing: Connecticut taxpayers
the highest federal taxes in the nation.
The Harvard study drew the following conclusion: "[Connecticut's]
persistent balance of payments deficit is driven by its tax
payments, not by its failure to attract Federal spending."
I couldn't have put it better! Because we receive just 66
cents on every dollar we send to Washington, cutting federal
taxes is the best way to keep money in our state, where we
can use it to address our particular needs.
Unfortunately, the track record of both Congress and the
previous administration to slow the growth of federal government
has been disappointing. On a bipartisan basis, budget rules
designed to restrain government spending have been waived,
amended and ignored -- allowing for higher levels of spending
in various areas of the budget.
I have spent my years in Congress working with others to
try to get our country's financial house in order and balance
the federal budget. Supporting the Tax Relief Act is entirely
consistent with my long-standing efforts to limit the growth
of government, cut wasteful federal spending and move power,
money and influence out of Washington and back to local communities
where it belongs.
Additional Information on Budget and
Tax Issues
The Congressional Budget Office
The Office of Management
and Budget
The Joint Committee on
Taxation
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