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House Passes Bill to Ease Alternative Minimum Tax

House Speaker Nancy Pelosi (D-Calif.) acknowledges House Ways and Means Committee Chairman Charles Rangel (D-N.Y.), left, at a news conference on the alternative minimum tax with Rep. Richard Neal (D-Mass.), second from left, and House Majority Leader Steny Hoyer (D-Md.).
House Speaker Nancy Pelosi (D-Calif.) acknowledges House Ways and Means Committee Chairman Charles Rangel (D-N.Y.), left, at a news conference on the alternative minimum tax with Rep. Richard Neal (D-Mass.), second from left, and House Majority Leader Steny Hoyer (D-Md.). (By Susan Walsh -- Associated Press)

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By Jonathan Weisman
Washington Post Staff Writer
Saturday, November 10, 2007

The House yesterday narrowly approved a $73.8 billion measure to protect millions of families from the alternative minimum tax and offer new tax breaks to middle-income homeowners and low-income parents, offset by tax increases that would land primarily on wealthy Wall Street financiers.

The 216 to 193 vote came after a fiery debate that divided Democrats and energized Republicans, who assailed proposed tax increases that Rep. Sam Johnson (R-Tex.) called "an assault on free enterprise." Democrats countered that they were only closing tax loopholes on super-rich private-equity and hedge fund managers in order to live by a pledge of fiscal responsibility.

"We planted the flag for fiscal responsibility . . . as we gave a tax cut to the middle class," said House Speaker Nancy Pelosi (D-Calif.).

But the hours of open class warfare on the House floor made clear how difficult it has become for Democrats to abide by rules they passed this year to pay for tax measures and new programs with corresponding tax increases or spending cuts. With the Internal Revenue Service nearing its deadline for completing this year's tax forms and with the Senate balking at similar tax boosts, the political demand for a quick fix for the alternative minimum tax could still spell the demise of the Democrats' pay-as-you-go, or "paygo," promise.

"There's no doubt that Congress will complete work this year on an AMT patch that will protect those who don't pay the tax now from being hit," Senate Finance Committee Chairman Max Baucus (D-Mont.) said after the vote, without mentioning how it would be paid for. "Millions of American families are counting on us to act, and we will."

But Baucus said this week that it is unlikely he could get the 60 votes he would need to pay for an AMT patch with the same tax-increase provision. The White House has also issued a veto threat, so yesterday's vote was for a tax increase that is not likely to be enacted.

Senate Majority Leader Harry M. Reid (D-Nev.) has put off the issue until after Congress's Thanksgiving recess, but he has pledged to pay for an AMT patch. He has suggested that the offsetting tax increases may fall on different targets.

Sen. Charles E. Schumer (N.Y.), chairman of the Democratic Senatorial Campaign Committee and a key member of the finance and banking committees, continues to say he would support an increase in taxes on partnerships only if its sting fell on more than just the hedge fund and private-equity industries.

"We should not single out just one industry," Schumer said Thursday.

For several years, Republican-led Congresses have approved temporary "patches" to stave off the increasing reach of the alternative minimum tax, a parallel tax system enacted in 1969 to ensure that 155 super-wealthy families paid at least some income taxes.

But because the law did not ensure that the AMT's income threshold would rise with inflation, the tax now hits 4 million U.S. families, and without congressional intervention it will affect 23 million more, mainly those with upper-middle incomes, this year.

Taxpayers are not struck by the AMT based on income alone. The number and type of deductions and credits they take, as well as the level of their state's taxation, also help determine whether they will be forced into the alternative taxation system.


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