Subject: 183% Tax Bracket & interest-free loan to the Government on ISO-AMT robs Texas retirees of nest egg
Statement to the House Ways and Means Committee, Subcommittee on Oversight
Washington, D.C. June 2004
From Debbie and Mike Murphy
Thank you for hearing our story. I will be brief and to the point.
Before retiring from the high tech industry several years ago (just before the crash), we earned tens of thousands of stock options through our hard work and sacrifice to our employer corporations. By the time we retired, my stock options were worthless. My wife’s BEA Systems stock increased in value from the $5/share purchase price to $85 for year-end tax purposes, an $80 per share PAPER GAIN. Even though our income that year only totaled approximately $300,000, to our surprise, our AMT bill required us to pay almost $550,000 in taxes!
We were forced to sell much of the stock well below its taxed value to pay the taxes. I thought the purpose of “incentive stock options” was to help keep corporations solvent by creating incentives for employees to keep the stock, not sell it. Yet, we had to sell to pay our tax bill. I am sure this is only one of the many unintended consequences of the AMT laws.
We did not just lose our investment, we lost our nest egg to pay AMT and generate “credits” against the regular tax we supposedly would owe someday. We are happy to pay tax on any real gain, but paying AMT tax on a gain that we will never receive has left us far short of our ability to retire.
To make matters worse, since our change of careers (we opened a small pizzeria), we barely generate enough income between the two of us to pay any income taxes (around $24,000 total income from our small restaurant business). Therefore, we are unable to reclaim our AMT credits and benefit from the hundreds of thousands of dollars that we “pre-paid.”
The government has certainly benefited from this interest-free loan. But, now it is time to provide a way for us to access our nest egg.
Debbie & Mike Murphy
Murphy's Pizzeria and Cafe
Fort Davis, TX 432-426-2828