Lawmakers Shudder at Tax Increase To Fix AMT

Sen. Charles B. Rangel says he eventually wants to draft a bill that would permanently eliminate the alternative minimum tax. (By Caleb Jones -- Associated Press)

Almost a year after vowing to protect millions of middle-income families from a special tax meant for millionaires, Democratic leaders are still struggling to find ways to raise the billions of dollars needed to fix the problem.

In a series of meetings and interviews yesterday, lawmakers reiterated their determination to prevent the alternative minimum tax from imposing a major tax increase on 23 million American households this year.

But for the first time, lawmakers, particularly in the Senate, raised the serious possibility that the $50 billion needed to pay for that protection might not be offset with revenue increases as congressional rules require. A tax increase of that size would be among the largest increases to pass Congress in the past two decades.

One option debated during a private meeting of the tax-writing Senate Finance Committee yesterday was to alter the AMT to free middle-income households from its burden this year, and simply vote to waive the rules that require finding other sources of revenue.

Such a course would be a major blow to the Democrats' vow during last year's election to force the federal government to be more fiscally responsible and to pay for the tax cuts or spending increases it approves. The Democrats had complained that it was wrong for the previous Republican-led Congress to add to the budget deficit when it made those types of changes.

No decision has been made to proceed without offsets to the increases, lawmakers said. In fact, Democratic leaders in the House and Senate expressed their determination to try to find the extra revenue. "We will do a short-term fix and it will be paid for," said Brendan Daly, spokesman for House Speaker Nancy Pelosi (D-Calif.).

Several Republican leaders, including the senior Republican on the Finance Committee, Sen. Charles Grassley (Iowa), have advocated skipping the "pay for" option. They reason that the AMT was never intended to touch the middle class and the mistake should not become a burden on all taxpayers.

Democratic lawmakers, speaking privately because they did not want to contradict their leaders, said yesterday that the no-pay-for option was gaining momentum if for no other reason than that they had no alternative that could be enacted.

Inside the Finance Committee session, Republicans backed a no-pay-for strategy while Democrats were divided, participants said.

Publicly, senators clearly were weighing the possibility of repairing the AMT for a year without making up for the resulting revenue loss.

"It was a mixed picture as to whether there would be offsets," Sen. Olympia Snowe (R-Maine) said after the Senate Finance Committee meeting.

"At this point we don't have an agreement," said Sen. Debbie Stabenow (D-Mich.).