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No Alternative Yet

Congress fails to act on the AMT.

11:00 PM, Nov 17, 2007 • By WHITNEY BLAKE
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SHOPPERS HAVE STARTED to kick their holiday spending into high gear, but they shouldn't splurge on anything they were expecting to pay back in six months with their tax refund checks.


Congress has yet to fully enact a quick fix to the alternative minimum tax conundrum, and Friday marked the IRS deadline for finalizing the 12 relevant tax forms. Members of the House and Senate informed the IRS they intend to pass a patch, but the forms have to comply with current law. If and when a patch finally passes, the IRS would have to reconfigure, reprint, and redistribute the 12 forms for the AMT and various credits set to expire, and then also spend at least three months reprogramming its computer systems.


Printing problems aside, it appears as though the Senate is now stuck in a bit of a stalemate in just bringing the House version of a bill to the floor for debate. Last Thursday night, Senate Majority Leader Harry Reid requested unanimous consent for debate on two different versions--one by Sen. Trent Lott that called for the complete repeal of the AMT and a one-year extension of some expiring tax credits, and another by Senate Finance Committee chairman Max Baucus that included a one-year AMT patch and a two-year extension of the credits, with offsets only on the credits. Each had to pass by 60 votes.

Republicans rejected this, and Minority Leader Mitch McConnell countered later in the evening with Baucus's base proposal, a one-year patch and two-year credit extensions, and four amendments allowed per side that would each need 60 votes to pass. Democrats wouldn't agree to this. The reality is they don't have the votes to push through amendments that would make up for the lost revenue from the tax credits.


But the fact that Baucus started out offering a one-year AMT patch that wasn't offset is a "major concession from Democrats," said one senior Republican aide, breaking the Democrats' pay-as-you-go pledge. The "elephant in the room is now handled," said the aide.
Staffers from both sides indicate they want a bill passed by the Senate before the Christmas recess, but at the rate things are going, it's not a foregone conclusion.


With Congress now on Thanksgiving recess, nothing will happen before December, which will delay about $75 billion in tax refunds to 50 million taxpayers. Another Republican staffer familiar with the issue said there's a "substantial chance" of a patch without any offsets passing in December, given the short timeframe and the politically unpopular idea of prolonged tax refunds.


The House already passed a nearly $80 billion bill two Fridays ago by a vote of 216 to 193, with all Republicans opposed and eight Democrats siding with them, mostly Blue Dog Democrats such as John Barrow of Georgia, Melissa Bean of Illinois, and Tim Mahoney of Florida.


House Ways and Means Committee Chairman Charlie Rangel extended the patch for the AMT for about 23 million people for another year (a total of about $50 billion) and renewed various tax credits that were about to expire (roughly $30 billion in lost revenue). Rangel's bill offsets the costs by changing the tax structure and essentially doubling the tax rate for some investors and financial managers that earn carried interest, as well as altering a few other corporate tax rules.


Rangel also proposed a larger tax reform bill, including a complete repeal of the AMT with more offsets, which won't go anywhere in the Senate. His plan calls for a four percent AMT increase for married couples making over $200,000, and single taxpayers over $150,000. "This would take its toll among blue state voters," such as those in California and the affluent areas of the Northeast, said Pete Sepp, vice president for policy and communications for the National Taxpayers Union, which opposes Rangel's plan.


According to the IRS, 25 million taxpayers, up from just 4 million in 2006, will be subject to the AMT if a new patch is not approved by Congress, and they will pay an average of $2,000. Because the AMT is not tied to inflation rates, the number of people qualifying has increased and will spiral dramatically; in 1999, around 1 million people were affected by the tax, and by 2010, that number could rise to around 30 million. Republicans contend the antiquated 1969 AMT was never supposed to be applied to this many people. Only 155 Americans who paid no taxes by taking advantage of several exemptions and loopholes in the regular tax system were originally targeted with the AMT, which includes fewer exemptions.


The bill is necessary, Rangel and other Democrats argue, to stop the rich from getting richer off the backs of the poor, a class that has been sliding further into poverty under Bush administration policies.