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American taxpayers were recently handed a victory in the war against a burdensome and out of date tax system. The U.S. Treasury Department conceded the legal dispute and repealed the federal excise tax on long-distance telephone service. This is good news for all Americans who have a monthly long distance bill.
Originally established in 1898 as a “luxury” tax on wealthy Americans who owned telephones, the federal excise tax on telephone calls is not compatible with today’s modern information-age society. This tax that dates back to the Spanish American War is an antiquated tax that has already survived a century beyond its original purpose.
The Internal Revenue Service will issue refunds of taxes on long-distance services for the past three years. Next year taxpayers will be able to apply for refunds on their 2006 tax forms. Interest will be paid on refunds. The IRS is currently working on a simplified method for individuals to use to claim a refund on their 2006 tax returns. They are also working to determine the dollar amount for the standard refund. The dollar amount should approximate how much the typical taxpayer paid in tax over the last three years. The IRS will also provide a method for taxpayers who normally are not required to file income tax returns to claim a refund of the tax. A total of about $15 billion of telephone taxes collected over the last three years will be returned to American taxpayers.
I believe that all Americans are overtaxed. In addition, the tax code's complexity is an obstacle to job creation and economic recovery. It is disgraceful that so many Americans struggle to make sense of a tax code that even tax experts cannot fully grasp. The repeal of the federal excise tax is a good step in the right direction, but there are still many more examples of out-of-date, illegitimate taxes.
Another example is the Alternative Minimum Tax that was enacted in 1969. The original intent of the legislation was to prevent wealthy individuals from completely avoiding income taxes. The AMT thus resulted from the faulty premise that instead of making the tax code fairer and simpler, the way to solve this problem was to add a whole new layer of taxes on top of the existing, faulty tax structure. This was wrong, but what was worse is that Congress in establishing the AMT did not index it for inflation just as inflation rates took off during the 1970s. So a tax only meant to impact the wealthy, continues to affect more and more middle-class taxpayers every year.
I support doing what should have been done when Congress first confronted this issue in 1969. We should reform the tax code, to make it fairer, with abolition of the AMT being one of the goals of reform. While we work toward that goal, I will continue to support extending relief from the AMT by indexing the exemption by the rate of inflation. I voted in favor of The Tax Increase Prevention and Reconciliation Act of 2005 (H.R. 4297) earlier this year that extends AMT relief for another year.
I hope that we will be able to make even more progress on updating and simplifying our tax code this year in Congress. In general, I will be supportive of tax legislation that lowers marginal tax rates, reduces the tax code's complexity, and provides incentives that encourage stronger economic growth.
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