Congress puts off expansion of alternative minimum tax that would affect millions

WASHINGTON -- Congress acted in its final hours Wednesday to block growth of the alternative minimum tax, putting off an economic hardship affecting more than 20 million taxpayers and avoiding what would have been a political black mark for both parties.

The House voted 352-64 for a one-year fix of the AMT, a four-decade tax originally meant only to touch super-rich tax dodgers but now hitting millions of middle- and upper-middle income level households. Without that fix, an annual ritual of Congress, those subject to the tax would have risen from 4 million in 2006 to about 25 million in 2007, with the average levy of $2,000 a taxpayer.

"What we are hearing across the country today is a collective sigh of relief," said Rep. Eric Cantor, R-Va.

The legislation now goes to President Bush, who says he will sign it because, bowing to White House and GOP demands, it does not include tax increases or other new sources of revenue to pay for the $50 billion cost of the tax relief.

The last-minute nature of the vote on the AMT fix resulted from a fundamental difference between the House and Senate. House Democrats had insisted that the $50 billion in tax relief resulting from the one-year fix must be paid for by an equivalent amount of revenue elsewhere, mainly by closing a loophole on offshore tax havens.

Senate Republicans, however, blocked the Senate from taking up legislation that includes a tax increase, and Bush threatened to veto any bill that raised taxes.

On Tuesday the Senate again rejected the House-backed approach of a paid-for AMT bill. The Senate vote was 48-46 for the House bill, 12 short of the 60 needed to approve it.

With that vote, the House had no choice but to take up the Senate bill, which shields some 21 million taxpayers without a means to cover the cost to the Treasury.

"Let me be clear: There is no disagreement between Republicans and Democrats over protecting the middle class from the AMT," House Majority Leader Steny Hoyer, D-Md., said. "The question is, will we do so responsibly or charge tens of billions of dollars to our grandchildren?"

Cantor, the Republicans' chief deputy whip, said the Wednesday vote was "a huge victory for us." The GOP position, he said, "has been consistent down the line. We don't believe we ought to raise taxes to correct the mistake of AMT."

The AMT was created in 1969 to make sure that a small group of very rich people did not totally avoid paying taxes. But the tax, which applies more stringent rules for using deductions in calculating tax obligations, was never adjusted for inflation, and every year more middle- and upper-middle-level income people are hit by it. The main beneficiaries of the tax relief would be people in the $75,000 to $200,000 income level.

Even with House passage of an unpaid-for bill, the consequences of the congressional dispute could be felt by millions.

The Internal Revenue Service has said that it will take seven weeks from the time the bill is signed into law to reprogram and test forms, going well past the planned mid-January start of the 2008 filing season.

The IRS said Tuesday it has yet to decide whether certain delays in processing returns and sending out refunds will affect AMT taxpayers or all taxpayers.