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Patch Approved For Alternative Minimum Tax
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The Senate's refusal to accept the tax increases followed an extensive lobbying campaign that involved not only Wall Street firms but also the real estate industry, whose managers would have also had to pay a higher tax rate. Dozens of lobbyists were hired to pressure lawmakers, and campaign donations were stepped up, especially from Wall Street executives.
The nonpartisan Center for Responsive Politics reported that hedge funds and investment firms donated $11.7 million to federal candidates and party committees in the first nine months of this year, $1.6 million more than they contributed in all of 2005 and 2006. Their lobbying expenditures also skyrocketed. The firms spent $8 million on registered lobbyists in the first six months of the year, compared with $3.7 million for all of 2006, the center reported.
Had the patch not been approved, 81 percent of taxpayers with taxable incomes of $100,000 to $200,000 would have been affected by the AMT, according to the congressional Joint Committee on Taxation. Nearly half of taxpayers who earn $75,000 to $100,000 would also have been affected without yesterday's legislation.
Thanks to the bill, however, 10 percent of those who make $100,000 to $200,000 and fewer than 2 percent of taxpayers who earn $75,000 to $100,000 will now have to pay the AMT. Overall, 4 million households will have to pay the tax, about the same number as in 2006.
The AMT was meant to prevent the very wealthy from using deductions, credits and other shelters to avoid paying taxes. But its income thresholds did not rise with inflation, gradually bringing more middle-income people into its net.
Taxpayers are not hit by the AMT based on income alone. The number and type of write-offs they take also determine whether they will be forced into the AMT. Because of rising incomes, the tax's bite is expected to expand to 30 million households in 2010.
Congress next year must patch the AMT again or force millions of families to pay more tax. The patch's revenue loss then will rise to $65 billion, an amount that Andrew B. Lyon of PricewaterhouseCoopers said would be "extremely difficult" to raise.
