Lawmakers Push for AMT Protection in Stimulus Bill

By Lori Montgomery
Washington Post Staff Writer
Saturday, January 10, 2009

Some influential Democrats are pressing to make an expensive addition to President-elect Barack Obama's economic stimulus package: an $80 billion provision to protect millions of middle-class families from the alternative minimum tax.

Advocates say limiting the tax, known as the AMT, would avert a substantial tax hike for as many as 24 million taxpayers early next year. But opponents say cutting a tax that most people have never paid would do little to stimulate economic activity and would dilute the impact of an initiative aimed at lifting the nation out of the recession.

"There's a natural tendency on the part of some longtime, senior congressmen to put as much dirty laundry as possible in this stimulus bill," said Rep. Jim Cooper (D-Tenn.), a fiscal conservative who is urging Democrats to keep the package tightly focused on creating jobs and new investment. "I'm not sure what [the AMT] would stimulate, other than our re-election."

A temporary limit on the AMT is just the most expensive proposal among a flood of requests for additions to the massive stimulus package, which some Democrats now say could grow as large as $1 trillion. Since lawmakers returned to Washington earlier this week, Obama's team has been besieged with proposals, ranging from additional tax credits for renewable energy to changes in the bankruptcy code to help homeowners at risk of foreclosure.

Combined with concerns from some Democrats about Obama's plan to cut taxes for businesses and working families by more than $300 billion, the rush to include favored programs is slowing progress on a package that many economists say is urgently needed to bolster the rapidly weakening economy. Lawmakers who once aimed to approve the stimulus measure in time for Obama's Jan. 20 inauguration now say they are unlikely to vote on it until mid-February.

As Obama economic adviser Lawrence H. Summers and other senior members of the president-elect's team scurried between listening sessions with lawmakers in the Capitol yesterday, House Speaker Nancy Pelosi (D-Calif.) said each of the lawmakers' requests will be carefully reviewed.

"All of their priorities are ones that we share," she said. "We just want to make sure that those functions written in this law are ones that can be used immediately and create jobs." As for limiting the AMT, Pelosi confirmed that some lawmakers are pushing the idea. But, she said, "of course, we're concerned about the size of the package."

The AMT is a parallel tax structure created in 1969 to nab 155 super-rich tax filers who were using loopholes and deductions to wipe out their tax bills. Because it was not indexed for inflation, it has grown to ensnare millions of people for whom it was never intended. For years, Congress has blunted its impact by enacting temporary inflation adjustments. The most recent "patch" expired in December, and unless Congress acts, the number of people hit by the AMT is poised to explode.

The impact of the AMT would be harshest on married couples, families with children, and taxpayers who live in high-tax jurisdictions, including Maryland and the District. Rep. Chris Van Hollen (D-Md.), whose district includes suburban Montgomery County, is among those pressing to add a one-year AMT patch to the stimulus package, saying it would be unwise "to raise taxes on 24 million middle-income Americans in the middle of an economic downturn."

Adding the patch to the stimulus bill also would defuse a perennial battle over whether to cover the cost of the patch by raising taxes, Van Hollen said. Lawmakers generally agree that the package should be financed with borrowed money because raising taxes or cutting spending elsewhere would hurt the economy. But with this year's budget deficit expected to soar past $1.2 trillion, fiscal conservatives say they will insist Congress cover the cost of initiatives outside the stimulus package.

Key members of the House Ways and Means Committee and the Senate Finance Committee, which have responsibility for the tax portion of the stimulus package, agree with Van Hollen's assessment. And adding the AMT appeals to some Republicans because it would offer a tax cut to a broader swath of the public than Obama's tax credit for working families, which would benefit mainly taxpayers on the lower end of the income spectrum.

But others are arguing strongly against including the AMT. Rep. John Spratt (D-S.C.), the chairman of the House Budget Committee, said he would prefer to use the AMT problem to fix attention on the broader issue of tax reform. Fiscal conservatives such as Cooper say patching the AMT without paying for it is fiscally irresponsible. And liberal Democrats, such as Rep. James Clyburn (D-S.C.), the number-three Democrat in the House, say patching the AMT would do nothing to solve the immediate problem of rising unemployment, which yesterday hit 7.2 percent.

"We need to get people back to work," Clyburn said. "And you can't get people back to work giving rich people tax cuts."

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