Congress Begins Work on Temporary AMT Patch, Extenders Bill

With only weeks to go, Congress has begun work on a bill that would keep the alternative minimum tax (AMT) from increasing the 2007 income taxes of millions of middle-class Americans.

The House Ways and Means Committee on November 1 approved the Temporary Tax Relief Act of 2007 by a vote of 22-13. Despite continuing objections by Republican lawmakers over the revenue offsets in the bill, the committee approved the one-year patch to prevent the alternative minimum tax (AMT) from affecting 23 million taxpayers next year.

Originally, when it became effective in 1970, the AMT was targeted at high-income taxpayers who were using various deductions and credits to escape from most tax liability. However, in recent years, because its provisions were not indexed to inflation, the tax is hitting more middle-income people.

Ways and Means Committee Chairman Charles B. Rangel (D-N.Y.) is the sponsor of the relief bill. He told lawmakers that a running disagreement between House Democrats and Senate Republicans over whether to raise taxes to offset the roughly $50 billion cost of AMT relief must be addressed.

Treasury Secretary Henry M. Paulson, Jr., said tax increases in the AMT legislation would hurt the economy; therefore, it will be difficult to pass. Paulson said an AMT patch with no revenue offset is the correct tax policy.

Rangel is likely to bring his measure before the full House for a vote during the week of November 5.

Senate Action

Meanwhile, Senate Finance Committee ranking member Charles E. Grassley (R-Iowa), and almost all committee Republicans, urged Chairman Max Baucus (D-Mont.) to follow normal legislative procedures on an alternative minimum tax (AMT) bill and extensions of expiring tax provisions without using revenue offsets.

In a letter dated October 30, Grassley and eight GOP members urged Baucus not to bypass the Committee by bringing an AMT bill with revenue offsets directly to the Senate floor. The lawmakers also pointed out that there is no need to offset AMT relief as it was never the intent of Congress to have to offset the cost of addressing the AMT in a permanent way.

The letter also urged similar consideration of the various tax extenders, such as the research and experimentation tax credit, the various depreciation provisions, the teacher and college tuition deductions, and the deduction for state and local sales taxes that are set to expire at the end of 2007.

Senate Democrats failure to date to bring a revenue-neutral AMT bill up for a vote lead to a Republican gambit on the Senate floor November 1 where Sen. James M. Inhofe (R-Okla.) offered a lengthy list of Senate-originated tax bills for approval by unanimous consent, only to be rebuffed by Baucus.

The chairman has so far struggled with Democrats and Republicans on the Finance Committee to finalize a full tax extenders bill for quick completion, mainly disputing whether to offset the measure or waive pay-go rules. But the senior tax writer told members that as soon as the Senate receives legislation from the House, there would be quick action on the AMT and extending expiring tax provisions.

Related items:

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 November 5, 2007.