WASHINGTON -- Treasury Secretary Henry Paulson warned lawmakers Tuesday that delays in enacting a temporary fix to the alternative minimum tax could cause millions of taxpayers to experience delays in receiving their refunds.
In a letter to Congress, Paulson also again warned Congress that failure to pass an AMT fix would expose 21 million mostly unsuspecting taxpayers to the minimum tax -- and an average tax increase of $2,000.
The AMT originally was designed to make sure that the wealthiest couldn't use tax breaks or deductions to eliminate their entire tax liability. But the tax doesn't adjust for inflation and so more middle class taxpayers are ensnared by the AMT each year unless Congress acts.
Democrats have promised to make sure the AMT doesn't entrap more taxpayers during filing season next year. But House and Senate Democrats have yet to agree on specifics of a fix or whether to raise revenue elsewhere so that an AMT adjustment doesn't add to the deficit.
Republicans say that since the AMT was never intended to hit the middle class, legislation to reform it should not be subject to pay-as-you-go rules that require tax cuts to be "paid for" with loophole closures or rate increases.
"This is not a new tax cut that should be paid for," said Rep. Jim McCrery of Louisiana, top Republican on the tax-writing Ways and Means Committee.
"This is preventing a tax increase."
The IRS is gearing up its computer programs and 2007 tax forms are going to press in November. Paulson warned that delays in enacting an AMT bill could expose as many as 25 million taxpayers to delays in processing of their returns and payment of refunds.
Paulson told lawmakers that delaying enactment of an AMT fix until mid-November or later would cause "significant compliance challenges and will result in confusion for taxpayers, tax return preparers and tax software developers."