The House voted Wednesday to protect more than 20 million mostly upper-income taxpayers in danger of being slapped with a tax increase averaging $2,300 because of the alternative minimum tax.
To help offset the cost, the bill more than doubles the 15 percent tax rate that many private equity and hedge fund managers pay on their profits. It passed 233-189 on a mostly party-line vote.
The offset was strongly opposed by Republicans, and it faces resistance in the Senate, assuring that Congress still faces a struggle as it tries to stave off the effects of the AMT for another year.
House Democrats, insisting that fixing the AMT must not add to the federal deficit, inserted about $61.5 billion in new revenues, much coming from making hedge fund managers and oil and gas companies pay more.
“If indeed we do nothing, $61 billion of tax burden is going to fall on 25 million good American taxpayers. And we want to fill that gap of the $61 billion. The other side says it doesn't exist,” House Ways and Means Committee Chairman Charles Rangel, D-N.Y., said.
But the top Republican on that committee, Jim McCrery of Louisiana, said the legislation pointed out a clear difference between the two parties. “Republicans believe that Congress should not raise taxes on one group of taxpayers in order to prevent an increase on another set of taxpayers,” he said.
Without congressional action, the number of taxpayers swept up by the AMT could balloon from around 4 million to between 25 million to 30 million. The Bush administration estimates that 22 million would be newly exposed to the tax without a legislative patch. Citizens for Tax Justice says the average tax relief would be about $2,300, with about two-thirds going to taxpayers with incomes of $127,000 or more.
In the 2006 tax year, a few taxpayers with incomes as low as $40,000 were affected by the alternative minimum tax, according to figures kept by the congressional Joint Committee on Taxation. About 10 percent in the $100,000 to $200,000 income bracket were affected by the tax, and 74 percent in the $200,000 to $500,000 income range had to pay it.
The AMT was enacted in 1969 to catch a small number of very rich tax dodgers, but the tax now hits many more people because it was never adjusted for inflation. This has led to an annual scramble by Congress to provide one-year fixes.