Senate Waives Pledge, Approves Tax Bill

By Jonathan Weisman and Jeffrey H. Birnbaum
Washington Post Staff Writers
Friday, December 7, 2007

Eleven months after adopting stringent new rules aimed at reining in the federal deficit, the Senate last night shrugged off its pledge of fiscal rectitude and overwhelmingly approved a measure to spare millions of families from the growing reach of the alternative minimum tax without providing an offsetting tax increase.

The Senate's 88 to 5 vote blew a $50 billion hole in the Democrats' promise not to pass any spending or tax measure that would add to the deficit. The outcome brought a furious response from conservative "Blue Dog" Democrats in the House, who assailed the Senate and vowed to block passage of any tax measure that would add a cent to the federal debt.

"We run for reelection every two years. They run every six years," fumed Rep. Mike Ross (D-Ark.). "Don't try to tell me the Senate can't take a tough vote."

Despite the heavy toll the AMT exacts on some middle-class taxpayers, Congress has been loath to repeal it outright because that would leave a trillion-dollar hole in the federal budget over 10 years. Instead, successive Congresses have opted for one-year "patches" that hide the long-term cost. The Senate-passed bill would spare the middle-class households touched by the AMT an average of $2,000-per-family increase on 2007 income taxes and would ensure that refunds of as much as $75 billion would be distributed without delay.

The AMT was designed in the 1960s to prevent the very rich from using deductions, credits and other shelters to avoid paying taxes, but its income thresholds did not rise with inflation. Taxpayers are not hit by the AMT based on income alone. The number and type of deductions and credits they take also help determine whether they will be forced into the alternative taxation system. Because of rising incomes, the tax's bite is expected to expand to more than 30 million households in 2010. Last year, the AMT affected 3.8 million mostly well-off households.

Senate Democratic leaders said that they had done all they could to preserve their much-ballyhooed pay-as-you-go -- or "paygo" -- rule, which says that any new entitlement spending or tax cuts would have to be offset by tax increases or spending cuts.

Once a centerpiece of Democratic claims to the mantle of fiscal discipline, paygo was ultimately steamrollered by the AMT, which could hit 23 million families this year if Congress does not act.

"We want everyone to know we have tried every alternative possible," Senate Majority Leader Harry M. Reid (D-Nev.) said with a sigh after a House-passed AMT bill, to be paid for largely with tax increases on wealthy Wall Street titans, fell to a Republican filibuster. Just 46 senators, all Democrats, voted to cut off debate on the measure, 14 short of the 60 needed.

For some Democrats, especially the Blue Dogs, the blow to paygo last night was particularly bitter. For years, Democrats tried and failed to force GOP leaders in Congress to adopt pay-as-you-go rules, in large part to limit wave after wave of tax cuts that they said were piling government debt onto future generations.

Republicans always resisted such strictures. And this year, as Democrats struggled to pay for priority measures on health care, student loans and agriculture with tax increases and spending cuts that opened them up to a barrage of Republican political attacks, they have seen why.

"The politics have been very bad," said Rep. John Tanner (D-Tenn.). "But that's the problem with politics: Politicians giving the voters everything they want without paying for it. That's the easy way out. That's how you become a Third World country."

With paygo breached, Republicans were almost gleeful. "They had painted themselves into a corner," said Sen. John Thune (S.D.). "That's a huge concession on their part, completely repudiating one of their core principles."

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