The Valley's Tax Revolt

U.S. Rep. Charles Rangel, a Democrat from Harlem, is not the sort of politician Silicon Valley types usually turn to in an hour of need. Nor is the hardball-playing Texas Republican, Rep. Dick Armey. But as millions of Americans await rebates from President Bush's $1.35 trillion tax cut, tech workers are praying that these powerful pols can spare them from an obscure tax law that threatens them with financial ruin.

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Rep. Charles Rangel, D-N.Y., the gravel-voiced old-guard Democrat from Harlem, is not the sort of politician Silicon Valley types usually turn to in an hour of need. Nor is Rep. Dick Armey, R.-Texas, the hardball-playing Texas Republican. But as millions of Americans await rebate checks from President George W. Bush’s $1.35 trillion tax cut, tech workers are praying that powerful pols like Rangel and Armey can join forces to spare them from an obscure tax law that is now threatening them with financial ruin. The alternative minimum tax was introduced in 1969 to close off tax loopholes exploited by the wealthy. But because the AMT has never been adjusted for inflation, it is increasingly hitting the middle class with huge tax bills. Nobody has been whacked harder than the tech workers who last year exercised options to buy stock in their companies — a fringe benefit as common as cappuccino during the dot-com boom — but did not sell the stock within the same calendar year. Those workers, from secretaries to CEOs, have been stunned to discover they owe tax based on the stock price the day they exercised their options, regardless of whether they sold any shares. In exchange for their now often-worthless stock, some individuals face a tax liability that exceeds their net worth. The pauperization of the princes of the information age has led Rep. Zoe Lofgren, D-Calif., to introduce legislation to apply the tax when stock is sold, not acquired. Lofgren convened a hearing at San Jose, Calif. City Hall last week to discuss her constituents’ plight after scores of tax victims rallied outside. “Goodbye American Dream, Hello American Nightmare,” read the sign held by Paul Sander, a 40-year-old Broadvision software engineer who says he owes $1 million in taxes. “I stand to lose everything I own,” he declared. Spurred by a grassroots movement organized around the ReformAMT.org Web site, more than 200 people attended the hearing, some sobbing as they described the prospect of forfeiting their homes to pay tax bills. But Lofgren must overcome perceptions that Silicon Valley folks are, as ReformAMT.org activist Jay Cena puts it, “rich weenies” who simply gambled in the stock market and lost. Today, the AMT affects about 1.3 million taxpayers. It is not known how many of those individuals are tech stockholders. The time may be right to overhaul the AMT. In recent years, key lawmakers from both parties have warned that the tax is becoming a law of unintended consequences. The AMT is not triggered by income, but by any of 28 financial situations, such as high state and local taxes, large long-term capital gains and incentive stock options. “If someone thinks the AMT does not affect them, they better stay tuned,” says Rangel, the ranking Democrat on the House Ways and Means Committee, in a statement. He warns that 36 million Americans could be paying the AMT by 2010. Armey, the House majority leader, told a tax industry newsletter that “by July the alternative minimum tax is going to set up a nationwide howl.” Several bills have been introduced to reform the AMT, including Rangel’s legislation to allow taxpayers to deduct state and local taxes. But Lofgren argues that the stock-option mess is the most urgent problem. Her bill is estimated to cost $16 billion over 10 years. Scrapping the AMT altogether, as some lawmakers propose, would cost about $292 billion. But even after the tech crash, Lofgren worries about Silicon Valley prejudice and envy. “There’s an element abroad in this country that hates California,” she says. “You see it in the energy crisis. But I hope fair-minded people see that this is really an injustice.” Related Articles from The Industry Standard: Butchering Cattle Prices Lawmakers’ Net-Tax Evasion Wishes Labor to Use the Internet to Address Workforce Needs Copyright � 2001 The Industry Standard

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