House Approves AMT Bill with New Tax Increases

By Stephen Cooper, Washington Staff Writer

Middle-class taxpayers would receive one year of relief from the alternative minimum tax, under a bill passed by the House of Representatives on June 25, 2008. By a party-line vote of 233 to 198, Democrats approved the Alternative Minimum Tax Relief Act of 2008, which was introduced on June 17 by House Ways and Means Chairman Charles B. Rangel (D-N.Y.).

But the controversial bill will likely not become law because it contains tax increases. Many Senate lawmakers and White House officials object to raising taxes to offset an AMT that never was never supposed to be imposed. By law, the AMT is not indexed for inflation, unlike much of the tax code. So every year more taxpayers become ensnared by the tax, originally intended for multi-millionaires with numerous write-offs. Each year, Congress passes a "patch" to adjust the AMT for inflation, keeping middle-class taxpayers from being subjected to its requirements.

The $61.5 billion cost of the bill, which is offset by provisions that raise taxes on oil companies, hedge fund managers and others, continued to draw opposition from GOP lawmakers. “This vote is nothing more than a cynical and craven political exercise that will only further delay the inevitable: a one-year patch without revenue raisers,” said Rep. Phil English (R-Pa.), ranking member on the House Select Revenue Measures Subcommittee.

According to a summary of the legislation, the two biggest tax increases in the AMT bill would tax the so-called "carried interest" earned by investment fund managers as ordinary income, rather than as capital gains. This would raise $30.9 billion over 10 years. The bill would also deny Code Sec. 199 benefits for major integrated oil and natural gas companies. This provision would raise $13.5 billion over 10 years. A series of other new tax measures account for the remaining $17 billion in increases.

Rangel told lawmakers that the federal government should pay for what it buys, rather than increasing the nation’s budget deficit. “We shouldn’t go to China and Japan and ask them once again to bail us out,” Rangel said. “Instead, we should take a look at the tax code and see what loopholes we can close to repair the AMT – at least for this year – without passing this burden on to our children and grandchildren.”

Republican lawmakers noted that the Senate as well as the White House reject the idea of raising taxes to offset the cost of AMT relief. They predicted that a tax-free AMT relief bill will be passed by Congress and signed into law by President Bush in 2008.

Veto Threat

The White House issued a veto threat against the AMT relief bill in this form: “The Administration does not believe that the appropriate way to protect the 26 million Americans from higher 2008 AMT liability – including 22 million that would be newly exposed to the AMT – is to impose a tax increase on other taxpayers,” according to a written policy statement. The administration statement warned that a delay in enacting the measure would likely disrupt the 2009 tax filing season.

At the end of 2007, a similar situation emerged in Congress regarding the AMT. Disagreements over the same issues led to a delay in passing an AMT patch without tax increases. This resulted in taxpayer confusion and IRS delays in processing returns for the 2008 tax season.

This situation could repeat itself for the 2009 tax filing season.

Related items:

Congress Agrees To AMT Tax Relief at Last-Minute, Before Its Recess

Clean Patch for AMT Clears Senate

Delayed Start to 2008 Filing Season Could Mean Numerous Problems for IRS, Taxpayers

No Changes Anticipated in Tax Extenders Package

House Approves One-Year AMT Patch Legislation

Congress Begins Work on Temporary AMT Patch, Extenders Bill

Year-End Tax Planning Must Deal with Uncertainty

Tax Rate Projections for 2008

Senate Finance Panel Hears Solutions for AMT Problem

IRS Begins Tax Season With Important Issues Unresolved

Permanent AMT Fix Poses Difficult Choices

Posted July 21, 2008.