Democrats Advance Plans Against Alternative Minimum Tax

The ideological divide over tax relief got a little wider in Congress Wednesday as House Democrats, over the protests of Republicans, advanced their latest plan to shield taxpayers from the alternative minimum tax.

The House Ways and Means Committee voted 22-16 for legislation saving more than 20 million largely upper-middle-class families from shelling out thousands of dollars for the AMT in 2008, a concept that nearly all lawmakers support.

But in a repeat of last year, Democrats insisted that the $61.5 billion cost of the relief must be made up by bringing in new revenue, mainly from corporations. Republicans were equally insistent that that will never happen, saying that tax relief for some people should not result in what they regard as tax increases for others.

Last year, after months of wrangling, Senate resistance and a presidential veto threat, House Democrats gave in, and on the last day of the session in December Congress approved an unpaid-for AMT bill. The late vote delayed refund checks for millions of taxpayers while the Internal Revenue Service reprogrammed its computers to comply with the new law.

The Ways and Means vote came one day after a similar battle played out in the Senate. Senate Republicans on Tuesday blocked Democrats from bringing up a $55 billion bill renewing dozens of expiring tax credits and extending tax credits for renewable energy development because the Democratic bill had "offsets," from taxes on hedge fund managers and multinational corporations, to pay for it.

On Wednesday Senate Republican leader Mitch McConnell, R-Ky., tried to bring up a similar bill without offsets, but Democrats would not agree.

"If we substitute theology for logic, then we are going to find that it is very difficult to get to that common ground," Ways and Means Committee member Richard Neal, D-Mass., said of the philosophical differences on taxes between the two parties that has hindered compromise.

One-year fixes for the AMT have become an annual event for Congress in recent years. The tax was enacted in 1969 to catch a small number of very rich tax dodgers, but the tax has come to entrap many more people because it was never adjusted for inflation. Even with the fix, the AMT now affects some 4 million taxpayers.

An analysis by Deloitte Tax found that a single, childless person earning $200,000 will pay $2,800 more in taxes in 2008 without the AMT patch. A married couple with four children and an income of $100,000 would be subject to $2,700 more in taxes.

The Ways and Means bill would raise about $31 billion over 10 years by increasing the tax rate on the share of investment profits received by private equity and hedge fund managers, also known as carried interest. It would disallow certain deductions some oil and natural gas companies receive for domestic production, bringing in $13.6 billion.

A third provision raising some $9.8 billion requires credit card companies to inform the IRS of payments they make to merchants for credit and debit card transactions. A fourth closes a loophole used by foreign multinationals to avoid taxes on income earned in the United States, raising almost $7 billion.

The measure, said committee chairman Charles Rangel, D-N.Y., "would deliver this tax relief to middle-class families without adding to the deficit and without forcing future generations to pay for the decisions we make today."

But the top Republican on the panel, Jim McCrery of Louisiana, said he "took comfort in this bill's dim future and hope that we can work together soon to enact an AMT patch without offsets."