WASHINGTON – At least 9 million taxpayers would escape the alternative minimum tax (search) next year under a bill the House passed Wednesday. The alternative minimum tax, designed to trap high-income tax evaders, ensnares more middle-income taxpayers each year. About 3 million taxpayers, some of whom live in high tax states or have numerous children, paid the tax this year.
The House voted 333-89 to pass a bill designed to keep those on the edge of the alternative minimum tax from falling into its grasp next year, preventing it from imposing an extra $17.8 billion in taxes.
"While Congress is studying a long-term fix to correct the AMT problem, it is imperative that we act now and make certain that we do not increase the number of hardworking taxpayers who are subjected to the AMT," said Rep. Rob Simmons (search), R-Conn.
The White House said it was pleased the House had passed the bill.
"The administration urges Congress to act by the end of this year to extend AMT relief," the administration said in a written statement.
The White House estimated that 9.2 million more taxpayers can expect to pay the tax next year unless Congress takes action. The Senate must pass the bill and the president must sign it before it becomes law.
The Tax Policy Center (search) estimated that as many as 12 million more taxpayers could get hit next year if lawmakers prevent popular tax cuts, like an expanded bottom tax bracket and an increased child tax credit, from expiring.
The bill would slow the tax's creep into the middle class by allowing taxpayers to exempt from the tax as much of their income next year as they can this year.
The alternative minimum tax forces some taxpayers to run through a long series of calculations designed to determine a theoretical minimum tax. Many of the exemptions and deductions that many taxpayers use to lower their tax bill don't apply.
The House voted 228-197 to reject a Democratic solution to the tax and its complexities. Under their plan, single individuals who earn $125,000 or less and couples who earn $250,000 or less would be exempted from paying the alternative minimum tax.
The cost of the Democratic bill would be covered by closing tax shelters, including those that came to light during investigations of Enron. It would also require that companies have some business purpose to their tax transactions, prohibiting those designed only to lower or eliminate taxation.
Democrats criticized the Republican bill for deepening federal budget deficits and extending tax cuts during a time of war.
"We cannot have guns and butter and ice cream," said Rep. Alcee Hastings, D-Fla.
Taxpayers often run into the alternative minimum tax because they have a combination of factors ignored in the AMT tax system, such as high state taxes, a large amount of unreimbursed employee expenses or a large number of personal exemptions for children or dependent parents.
Nina Olson, the government's taxpayer advocate, put the AMT at the top of her annual list of most vexing problems facing taxpayers. She called it "a time bomb on a short fuse."
For those forced to pay it, the alternative minimum tax effectively takes back the tax cuts passed during the Bush administration. The Center on Budget and Policy Priorities, a think tank used often by Democrats, said that interaction means the Republicans can use the AMT "as a major budget gimmick to reduce artificially the cost of their other tax cut proposals."
The Treasury Department is studying ideas to restructure or eliminate the tax.
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