Dear Conferee:
As the Conference Committee for H.R. 4297 convenes, House and Senate Members have before them many issues whose proper resolution could prove vital to continuing the prosperity of America's economy and the financial security of the nation's taxpayers. Accordingly, the 350,000 members of the National Taxpayers Union (NTU) urge you to craft Conference legislation that will extend pro-growth tax reductions, provide additional relief for taxpayers, and, equally important, steer clear of several truly destructive tax increase proposals. Our members hope you will consider the following specific recommendations during your deliberations:
Extend Dividend and Capital Gain Relief through 2010. Few tax policy actions by Congress could send a stronger signal to financial markets and millions of investors than to make permanent the 2003 tax law's reductions in dividend and capital gain tax rates. At the very least, however, lawmakers can harmonize these changes with the other income tax rate reductions enacted in 2001, by extending investment tax relief through 2010. Those who believe that simply waiting until 2008 to address these provisions should remember that large and small investors alike try to plan on a multi-year financial horizon. Decisions being made now and next year on where to invest capital are, in part, predicated on the anticipated after-tax return four or five years ahead. Without greater certainty over tax policy toward investments, the vital fuel that sustains America's recovery could begin to dry up and put our economy into a lower gear by 2007.
Protect Americans from the Alternative Minimum Tax (AMT). While our members were relieved to see the Senate's motion to instruct Conferees on shielding millions of tax filers from the complex and punitive AMT, two months of the 2006 tax year have already gone by without this protection. Americans planning their finances for this year deserve more predictability from Congress than "patches," and we concur with the recommendation from the President's Advisory Panel on Federal Tax Reform to do away with the AMT entirely. Until Congress debates such changes, we strongly urge Conferees to adopt the AMT relief package of higher exemptions that passed in the Senate's reconciliation bill.
Renew and Expand Other Tax Relief Options. Conferees have the opportunity to act on a number of tax relief proposals that NTU has supported as stand-alone legislation throughout the 109th Congress.
For example, mortgage insurance is a critical factor in allowing many moderate-income families, first-time buyers, and veterans to obtain their piece of the American Dream, but the larger costs of using this option do not receive a similar level of tax treatment provided to those who can afford larger down payments. Equally important, mortgage insurance expenses occur during the early part of the loan, when many new homeowners hope to implement long-term plans to build financial assets.
For these two reasons alone, including a one-year mortgage insurance deduction in the tax bill represents a logical step in helping to mitigate the federal tax consequences for the costs of buying and maintaining a residence.
Additionally, Americans who itemize their federal tax deductions have long been able to claim charitable contributions on their tax returns, but over 80 million non-itemizers do not currently have this option. Conferees should address this unbalanced tax treatment by providing an above-the-line deduction on tax forms for charitable contributions, even if the filer claims the standard deduction instead of itemizing.
Yet another appropriate provision for the Conference bill would be an extension of the federal tax deduction for state and local sales taxes. NTU supported this policy when it was enacted in 2004, out of concern that taxpayers shouldn't be penalized under federal law for living in states whose leaders have wisely avoided the imposition of income taxes.
Other proposals, such as a two-year extension of higher small-business expensing limits and renewal of the above-the-line deduction for higher education expenses, likewise merit inclusion in the final Conference bill.
Renounce Tax Hikes, Especially Windfall-Profits Tax Schemes. Last year the Senate chose to ignore past evidence and recent warnings from the economic community by adopting changes to Foreign Tax Credit rules that will function like a windfall-profits tax on oil companies. Another, equally-noxious provision would levy a "temporary" tax on domestic oil producers to fund the Low Income Heating and Energy Assistance Program. These policies against legitimate profits -- earned in an industry characterized by volatility -- are not only punitive, they are also counterproductive.
The Congressional Research Service has demonstrated how the last windfall-profit tax enacted in 1980 had the effect of discouraging U.S. oil production and increasing the nation's reliance on imports. Just this week, a new study by Drs. Robert Shapiro and Nam Pham for the Investors Action Foundation concluded that if the Senate's stand-alone "Windfall Profits Rebate Act" became law, savings and retirement holdings could decline in value by as much as $50 billion annually depending upon the price of oil. With more than 40 percent of oil company stocks held in retirement accounts and pension funds, such losses would be a major concern for millions of Americans.
The same disastrous results for our economy and for consumers will follow if the Senate's windfall-profit tax schemes in the reconciliation bill are allowed to stand. They should be barred from the Conference bill and given the burial they deserve.
Even after the work of the Conferees has finished, taxpayers will be left with many unanswered questions from the 109th Congress. Will repeal of the burdensome death tax be made permanent? Will the pro-growth income tax rate reductions of 2001 and 2003 be extended beyond 2010? Will there finally be debate and action on worthy tax reform legislation such as H.R. 25 (the Fair Tax Act) and H.R. 1040 (the Freedom Flat Tax Act)?
Congress should confront these fundamental issues with all deliberate speed, and provide Americans with a fairer, simpler, and less burdensome tax system. Until that time, NTU urges lawmakers to view H.R. 4297 as a chance to make incremental progress toward longer-term tax relief.
Sincerely,
John Berthoud
President