By Jeffrey H. Birnbaum
Washington Post Staff Writer
Thursday, October 18, 2007; D01

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.).

"There aren't very many good games in town here," said Sen. Ron Wyden (D-Ore.), also a Finance Committee member, referring to offsetting tax increases. "There are less than perfect choices."

In the House, Ways and Means Committee Chairman Charles B. Rangel (D-N.Y.) said he was inclined to lower his own sights when it came to tax legislation this year.

He said he would continue to draft what he has called "the mother of all reforms," a tax bill that would permanently eliminate the AMT and provide other benefits to as many as 90 million Americans. But he said that he was "leaning" toward not pushing that bill to a vote until next year.

He said he would concentrate this year instead on much smaller, stopgap legislation that would prevent the AMT from boosting taxes on middle-income families in the short run. The measure would also temporarily extend a series of soon-to-expire tax breaks, including one for corporate research and development.

Rangel said he intended to pay for the tax reductions in such a stopgap measure, which could total as much as $65 billion, but he declined to say how. He also indicated that finding those tax increases would be a hard slog.

"We'll pay for it with great difficulty," he said. "It's going to be politically painful."

In the Senate, tax-writers agreed that tax increases needed to pay for its own, similar stopgap bill would be tough to find.

Sen. John Kerry (D-Mass.) said after the Finance Committee meeting, "The effort is to pay for as much as you can pay for."

But Sen. Trent Lott (R-Miss.) said that those tax increases are "going to be pretty hard to get." Asked if the AMT change would be paid for in the end, he said, "Probably not."

President Bush has said he would veto tax increases as part of his stepped-up effort to keep both taxes and spending down.

Almost as soon as they won control of Congress last year, Democratic leaders began pledging to make ending the alternative minimum tax a centerpiece of the budget debate this year. They argued that the levy threatened to unfairly increase tax bills for millions of middle-class families by the end of the decade.

The complex tax was designed in the 1960s to prevent the super-rich from using deductions, credits and other shelters to avoid paying the Internal Revenue Service. But because of rising incomes, the tax is expected to expand to more than 30 million taxpayers in 2010 from 3.8 million mostly well-off households last year.