Frist says no time to alter alternative minimum tax

Congress won't move to block reach of AMT

may try again next year

December 14, 2005|By JOEL HAVEMANN | JOEL HAVEMANN,LOS ANGELES TIMES

WASHINGTON -- Senate Majority Leader Bill Frist, a Tennessee Republican, said yesterday that Congress had run out of time this year to save millions of upper-middle-income 2006 taxpayers from the grasp of the alternative minimum tax, which was created in 1969 to prevent the wealthiest citizens from sheltering most of their income from the IRS.

Congress will have time next year to rescue these taxpayers from the tax's reach before their 2006 tax returns are due April 15, 2007.

But Frist's remarks mean that on the first day of 2006, the amount of income that is exempt from the alternative minimum tax, or AMT, will plunge by almost one-quarter.

The alternative minimum tax law was passed after legislators discovered that some rich taxpayers had avoided paying taxes by putting most of their money in tax shelters.

It requires many taxpayers to compute what they owe twice: once under the traditional system, which allows deductions and tax credits, and again under the AMT system, which eliminates most deductions and credits but imposes slightly lower tax rates.

Taxpayers pay whichever of the two figures is higher.

Under the AMT, the first $58,000 of married couples' income ($40,250 for singles) is currently exempt from tax.

On Jan. 1, those figures are scheduled to drop, to $45,000 for couples and $33,750 for singles.

Because the income threshold that triggers the AMT has not risen with inflation, the tax threatens more and more taxpayers usually considered middle class, with incomes of between $50,000 and $75,000.

It particularly affects those with large families who take personal exemptions for dependents and those who live in high-tax states and are prevented from deducting state and local taxes.

The nonpartisan Tax Policy Center has said that about 3.5 million taxpayers will be affected by the AMT for 2005.

If Congress makes no further changes in the law, more than 19 million taxpayers will be paying the AMT in 2006.

Frist told reporters that the Senate, which returned to work yesterday after a three-week Thanksgiving recess, did not have enough time before the year-end holidays to complete work on legislation providing relief from the AMT.

The Senate had included relief from the AMT in a huge bill that would cut taxes by $58 billion over its first five years. In its tax bill, though, the House made a two-year extension of the tax cuts for investment income - which lowered tax rates on capital gains and dividends - the big-ticket item.

Under current law, today's maximum 15 percent tax rate on investment income is scheduled to rise to maximums of 20 percent for capital gains and 35 percent for dividends after 2008; the House bill would postpone that to 2010.

The House also favors curbing the AMT, but it included language to that effect in a separate bill.

Most Senate Republicans would prefer the House's extension of lower rates for investment income.

Eric Ueland, a spokesman for Frist, said the majority leader "has made it crystal clear that these provisions ought to be in the final version of the tax bill."

But it remains unclear whether such a bill could command a majority of the 100 senators.

The tax breaks for capital gains and dividends have little or no support among Democrats, and Republicans might not be able to get 51 of their 55 senators to support them.

All this makes for extremely complex negotiations as the House and the Senate try to forge compromise tax legislation and give themselves a few days off before the holidays.

Congress also faces other complex tasks, including reaching a compromise on very different House and Senate versions of legislation to cut at least $35 billion over five years from federal benefit programs.

Frist told senators yesterday that they should be prepared to stay in session Saturday - and perhaps next Monday and Tuesday.

Meanwhile, the fight over renewing the USA Patriot Act escalated yesterday, with the Bush administration saying the nation's security depends on congressional approval before year's end and the Senate's top Democrat joining an effort to block passage.

Senate Minority Leader Harry Reid, a Nevada Democrat, supports efforts to delay the vote, including a filibuster threatened by fellow Democrat Russell D. Feingold of Wisconsin, "so there will be more time to work on a good bipartisan bill," said his spokesman, Jim Manley.

President Bush sent his top law enforcement officer to Capitol Hill to demand that Congress pass a House-Senate accord that would renew more than a dozen provisions of the act before they expire Dec. 31.

Delaying or blocking passage, as opponents urge, would "make it much more difficult to restructure the Department of Justice in a way that continues the protection of this country," Attorney General Alberto R. Gonzales told reporters on Capitol Hill on the eve of a House vote.

"The time to act is now," he added.

Joel Havemann writes for the Los Angeles Times. The Associated Press contributed to this article.

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