Paying for Tax Fix Divides Dems, GOP

U.S. Treasury Secretary Henry Paulson listens to Chinese Vice Premier Wu Yi's speech during the Third China-U.S. Strategic Economic Dialogue at Grand Epoch City in Xianghe, central China's Hubei province, southeast of Beijing, Wednesday, Dec. 12, 2007. (AP Photo/Andy Wong, POOL)
U.S. Treasury Secretary Henry Paulson listens to Chinese Vice Premier Wu Yi's speech during the Third China-U.S. Strategic Economic Dialogue at Grand Epoch City in Xianghe, central China's Hubei province, southeast of Beijing, Wednesday, Dec. 12, 2007. (AP Photo/Andy Wong, POOL) (Andy Wong - AP)

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By JIM ABRAMS
The Associated Press
Wednesday, December 12, 2007; 3:49 AM

WASHINGTON -- Republicans say it's OK not to cover the $50 billion in revenue losses from Congress' annual alternative minimum tax fix to save millions of families from higher taxes _ even as the GOP president counts on revenues from that higher levy to reduce the red ink in his budget.

Democrats look at it as smoke-and-mirrors budgeting, the kind that has allowed the federal debt to swell to more than $9 trillion.

GOP assertions that Congress would never allow the AMT to hit more people so there's no reason to raise other taxes to make up for revenue losses "is the most disingenuous argument I've heard in my 19 years here," said Rep. John Tanner of Tennessee, a member of the House Democrats' fiscally conservative Blue Dog group.

Caught in the middle are millions of taxpayers who could see delayed refunds or a bigger tax bill because of the dispute. At stake is $50 billion in higher taxes if Congress, now in the final hours of this year's session, fails to work out its philosophical differences over the AMT.

The Internal Revenue Service has already warned that, with the AMT question still up in the air, it will likely have to delay processing returns, and giving out refunds, when the tax filing season begins next month.

The AMT, which disallows most exemptions and deductions, was initiated in 1969 to catch some 155 super-rich people who weren't paying any taxes. But unlike several other taxes, Congress opted not to index the AMT for inflation. Consequently, every year more people are subject to it. The number was 4 million in 2006 and that could grow to 25 million, many in the $75,000 to $200,000 income range, if Congress doesn't act. The average increase for each of those taxpayers would be about $2,000.

In recent years Congress has enacted one-year fixes to keep the AMT from expanding. Everyone supports another fix this year, the two parties are split over whether the $50 billion should be made up elsewhere.

House Democrats, in one of their first acts upon assuming the majority last January, passed a "pay-as-you-go" or "paygo" rule requiring that new mandatory spending programs or tax cuts be offset by an equal amount of spending cuts or tax increases so as not to add to the deficit. The AMT fix passed by the House in November contains new tax revenue, much of it raised by closing a loophole that taxes investment fund managers at a lower-than-normal income tax rate.

Senate Republicans, however, are using their filibuster powers to force the Senate into maintaining low rates for investment fund managers and accepting an unpaid-for AMT fix.

House Ways and Means Committee Chairman Charles Rangel, D-N.Y., on Tuesday came back with a new paid-for AMT bill that could be on the House floor Wednesday. He said his new plan found less controversial ways to offset the costs of the AMT relief, including closing a loophole that allows hedge fund managers to defer compensation to offshore accounts.

"In my opinion, these are all phantom funds," Sen. Judd Gregg, R-N.H., top Republican on the Budget Committee, said during Senate debate. "We basically know the alternative minimum tax is not going to generate these revenues."

Republicans, said GOP leader Mitch McConnell of Kentucky, "will not raise taxes in exchange for blocking a tax that was not meant to be."


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© 2007 The Associated Press

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