House accepts patch for '07 minimum tax

Last-minute action saves millions from increase

December 20, 2007|By Noam N. Levey and Jonathan Peterson | Noam N. Levey and Jonathan Peterson,LOS ANGELES TIMES

WASHINGTON -- House lawmakers agreed yesterday to spare more than 20 million taxpayers from the alternative minimum tax this year, bowing to Republican demands that the $50 billion in tax relief not be offset with any other tax increases.

On the last day of legislative business this year, the House voted 352-64 to "patch" the AMT, ensuring that millions of middle-class households - some with incomes as low as $75,000 - will be sheltered from its bite.

The bill, which the Senate has already approved, is expected to be signed by President Bush.

Yesterday's vote marked a significant defeat for congressional Democrats, who had fought to offset the lost revenue with taxes on a small group of very wealthy Americans.

Democrats also did not succeed in extending a number of popular tax breaks sought by businesses, including a research-and-development tax credit. In addition, they could not muster support to expand the child tax credit to help the low-income parents of millions of children.

But the vote ended a high-stakes game of chicken between the two parties over a tax that threatened to hit eligible Americans with an average $2,000 tax increase this year.

"What are our options?" asked House Ways and Means Committee Chairman Charles B. Rangel, a New York Democrat, who had pushed for legislation that did not add to the federal deficit.

"We could stick to our fiscal guns. We could say the right thing to do is not to pass a bill that's not paid for," Rangel said. "Or we could say why hold 23 million taxpayers hostage because of the irresponsibility of the minority in not being willing to pay for this."

Louisiana Rep. Jim McCrery, the ranking Republican on the committee and a staunch opponent of the Democratic tax plan, hailed the settlement.

"This is good news for those taxpayers," he said. "It's good news for the economy at a time when many economists are worried about our economy going into recession."

Under the legislation, most of the roughly 4 million taxpayers who paid the tax last year will pay it again. Estimates of the number of taxpayers who will be spared from the tax vary considerably.

Congress passed the AMT in 1969 to guarantee that the nation's richest households pay at least some tax. But the measure, which allows fewer deductions than the ordinary tax rules, was never adjusted for inflation. As a result, its formula has forced up tax payments for a growing number of Americans, and Congress has repeatedly stepped in with short-term fixes.

This year, Democrats, who sought to bring more fiscal responsibility to Capitol Hill after years in which Republicans ran up the national debt to more than $9 trillion, contended that paying for a fix was the only fiscally responsible approach.

But Republican lawmakers fiercely resisted, arguing that tax increases were harmful to the economy.

House Democrats - sticking to the pay-as-you-go budgeting rules they reinstated in January - twice this fall passed measures that offset the cost of the AMT fix by targeting some of the country's wealthiest taxpayers. The Democratic tax increases would have affected the managers of investment partnerships and wealthy individuals who benefit from offshore tax havens.

Each time, however, the measures died in the closely divided Senate, where the 49-strong Republican caucus was able to block the proposals, most recently on Tuesday night.

With the impasse threatening to slow the Internal Revenue Service's processing of refunds next year, Democratic leaders finally agreed to stop insisting on an offset.

IRS acting commissioner Linda Stiff said the agency would immediately begin reprogramming forms, a process the IRS has said could take about seven weeks. "Our people will do everything they can to quickly update our systems for this major change," she said in a statement.

The independent IRS Oversight Board, in a report on the possible consequences of a delay, predicted that a Feb. 4 start for the filing season would entail a delay in issuing about 13.3 million refunds worth $39 billion.

Noam N. Levey and Jonathan Peterson write for the Los Angeles Times. The Associated Press contributed to this article.

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