Johnson: Stop interest-free loans to the government

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Washington, July 21, 2005 | McCall Cameron ((202) 225-4201) | comments
Today U.S. Congressman Sam Johnson (3rd Dist-Texas) reintroduced critical tax-relief legislation that would virtually end the injustice of people floating interest-free loans to the government.
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Today U.S. Congressman Sam Johnson (3rd Dist-Texas) reintroduced critical tax-relief legislation that would virtually end the injustice of people floating interest-free loans to the government.

“No one should have to float the government an interest-free loan forever,” said Johnson.

Throwing people a “financial life line,” Johnson’s bill would fix a portion of the alternative minimum tax (AMT) problem for those who purchased, rather than sold, incentive stock options (ISOs) from their employer. Johnson’s initiative, the AMT Credit Fairness Act, would allow taxpayers with AMT credits that are more than four years old to begin to rebate them either at 20% per year, or at $5,000 per year, whichever is greater. These AMT credits currently amount to an interest-free loan to the government.

Many North Texas families experienced this financial drama as a result of tech companies offering incentive stock options. For a great majority of the employees, things went south fast when the so-called “tech bubble” burst and families have been digging out ever since as a result of “phantom gains.” “Phantom gains” are financial gains experienced only on paper, but not pocketed.

In most cases, to pay for AMT-ISO liability, families had to put second mortgages on their homes, cash out retirement savings, sell assets and struggle to work out payment plans with the Internal Revenue Service (IRS).

Created to tax the extremely wealthy, the alternative minimum tax was established to prevent high-income individuals from using special tax breaks to pay little or no taxes. The AMT is a parallel tax system that requires taxes to be calculated twice, using different rules each time. Ultimately, the higher of the two tax bills must be paid. But for various reasons, the AMT, which eliminates many deductions, reaches more people each year, including some moderate-income people and some who don't use special tax breaks.

In most cases, upon purchasing ISOs, which constitutes income, people were automatically thrown into AMT. Critics argue the wisdom of companies granting ISOs, with all their complications, to middle managers and rank-and-file employees who did not routinely use tax professionals and financial planners to manage their affairs. Yet, this problem occurred, and Johnson wants to see people get their money back.

“I want to thank the numerous constituents who brought this issue to my attention. This bill would not have been possible without their help,” said Johnson. Several residents and employees of the Third District contacted the Congressman, urging him to find a solution.

Several fellow Ways and Means Members are original cosponsors of the bill. For a list, contact the office.

“This AMT-ISO situation demonstrates once again why we should repeal the AMT altogether,” said Johnson, the highest-ranking Texan on the Ways and Means Committee.

Outside groups like Reform AMT and Coalition for Tax Fairness have endorsed Johnson’s proposal. To learn more about ReformAMT, visit www.reformamt.org. To learn more about Coalition for Tax Fairness, visit www.fair-iso.org.
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