Subject: The Alternative Minimum Tax is bad government policy on a number of fronts Comment: PRESIDENT'S ADVISORY PANEL ON FEDERAL TAX REFORM Statement from David W. Moyle Private Citizen 16369 SW Cinnabar Court Beaverton, OR 97007 March 15, 2005 Statement from David W. Moyle PRESIDENT'S ADVISORY PANEL ON FEDERAL TAX REFORM Washington, D.C. The Alternative Minimum Tax is bad government policy on a number of fronts: · It is unfair · It has stifled economic recovery · It is difficult to understand and creates taxpayer resentment My situation is this: I am a mid-level manager at Intel Corporation where I've worked for over 20 years. During my first 10 plus years at Intel I received incentive stock options. During the late 1990s and early 2000, the value of these options soared about the same time they were set to expire. Believing in Intel's long-term future, and the under the assumption that long-term gains would be taxed more favorably than short-term gains, I purchased the shares and held them. As a result, I began to trigger the AMT. For the year 2000, in particular, I generated more than $400,000 in AMT based on paper gains from the purchase of incentive stock options. Then, the price of Intel stock fell before my taxes were due, going from a high of $75 to an eventual low of under $13 per share. My alternatives were to sell my shares to pay my taxes and have little to nothing left, or take out a margin loan to pay my taxes and hold onto the shares in the hope that Intel would rise again someday. The stock has never fully recovered. To this day, I have over $500,000 in AMT credit, most of which I will probably not get back. The AMT tax I paid was based on phantom profits . . . in other words, money I never made. Below is why I believe the AMT is unfair, has stifled economic recovery, is very difficult to understand, and has created taxpayer resentment. The AMT is Unfair: Enron-style accounting: In calculating the AMT, taxpayers must calculate paper gains on stock option shares we have purchased, but not sold, and treat it as income. In other words, no real profit has yet been made. The regulations practically require us to do Enron-style accounting to show phantom profits as if they were real, and then pay taxes on them. It's not really a credit: As I began to pay AMT taxes and build a "credit," I naively assumed I would readily get this back once I finally sold the stock. While this could theoretically happen if I wait until the stock ever reaches the former lofty heights at which I was taxed, most of us get only a small portion of this "credit" back, at a rate of only $3000 per year. At this rate, I'll have to live to be 213 years old before I get the credit back. Interest free loan to the government: If we under-pay taxes, the IRS assesses interest on taxpayer accounts until we pay in full. In the case of AMT, I have grossly overpaid my taxes, and rather than receiving interest from the government for my pre-payment of taxes, I had to take out a loan to pay taxes on money I never made. In essence, I have given a $500,000 interest free loan to the government . . . and the government will in all likelihood return only a fraction of the loan. The AMT Has Stifled Economic Recovery: Discretionary Income Has Gone to Payoff Loans Used to Pay Taxes: Because AMT taxes on ISOs were based on phantom profits, many of us did not have the cash to pay our huge tax bills when the stock market crashed. In my case, I had to take out a $375,000 loan to pay taxes. Interest payments on my load were double my house payments, and my loan size grew because my income was insufficient to pay the interest. Prior to having the huge tax bill, I was shopping for a mountain cabin to enjoy with my kids while they're still living at home. We scrapped this plan. We were planning an international vacation. We scrapped this, too. We planned to make some upgrades to our home. We scrapped this plan as well. Basically, all our discretionary income went to pay interest on our loan to pay taxes ON PROFITS WE NEVER MADE. The AMT is Very Difficult to Understand: Confusing and Contrary to Existing Tax Incentives: The AMT requires us to calculate our returns two ways. A "credit" is not really a credit. A paper profit is treated as a real profit. It is very difficult to do financial planning because many tax incentives and normally wise investment strategies, such has holding investments for the long term, actually put us at great risk with AMT. Rather than encouraging long-term investment and ownership in our companies, the AMT encourages us to “cash out.” Taxpayer Resentment: Although I can't say I have always enjoyed paying my taxes, I had always viewed it as a necessary responsibility of citizenship. The AMT, however, has left me very confused and frustrated and quite frankly resentful of our tax policy. I feel that the government has taken advantage of me. I feel "robbed." The US Government as been the beneficiary of my stock options; I’ve paid a penalty. After years of growing my equity, I am now in worse financial shape than I was 5 years ago because I was taxed on profits I never made. To date, no one has done anything of consequence to address this unfair and complex tax. My hope is that your Committee will be able to do something. In priority order, I would have you: · Refund "credits" . . . or let us use the credit against all taxes owed, not just future AMT taxes. If this is not done, at least pay fair market interest on the "loan" and speed up the process of giving our money back. · Eliminate the AMT altogether...or go back and truly address the reasons it was created in the first place. David W. Moyle, Beaverton, Oregon |