The alternative minimum tax is Washington's ticking time bomb, a menace not just to middle-class taxpayers but to politicians of all stripes. No one wants it to explode, but no one wants to pay the enormous cost of defusing it, either.
Fresh from its Thanksgiving recess, the House will take up this week what Republicans have dubbed the Stealth Tax Relief Act of 2005, a one-year "patch" designed to prevent the AMT from exploding next year, from a relatively small levy on the rich to a broad hit on the middle class. The tax was established to make sure the super-rich cannot use deductions, credits and other dodges to escape taxation, but it is increasingly ensnaring the middle class. Without the patch, the number of taxpayers hit by the tax would jump from 3.5 million -- or 4.1 percent of taxpayers -- to 18.9 million next year, or 21.1 percent.
Why a one-year fix? The cost. Repealing the AMT could cost close to $1 trillion over 10 years. The patch alone will cost more than $30 billion.
That cost was enough to persuade senators to pass a one-year AMT fix last month under special "reconciliation" rules that prevented a filibuster of the measure. The $30 billion provision took up half the cost of a $60 billion tax bill largely devoted to tax incentives for investment in the region shattered by Hurricane Katrina. It needed a 51-vote majority to pass, not the 60 votes usually required to overcome a filibuster.
To the surprise of many lawmakers, House Ways and Means Chairman Bill Thomas (R-Calif.) left the AMT fix out of his version of a tax "reconciliation" bill. Instead, House leaders will bring the AMT bill to the floor tomorrow or Thursday under special rules designed to expedite passage of non-controversial bills. Thomas thought an AMT patch would have overwhelming support. If a protected tax reconciliation bill was limited this year to $70 billion over five years, why waste that precious $70 billion on a bill with broad support?
Under such "suspension" rules, bills need the support of two-thirds of the House to pass. In other words, while the Senate used parliamentary rules that made it easier to pass the AMT fix, the House is using rules that will make it harder, thinking lawmakers from neither party would dare vote against "stealth tax relief."
It's a good bet.
"It's not surprising they are doing this, because next year, it's going to hit big-time," Rep. David E. Price (D-N.C.) said, adding that Democrats probably would support the measure if it is not linked to less bipartisan tax cuts.
Under the same expedited rules, the House this week also will take up a tax measure that maintains earned income tax payments for troops earning combat pay, extend a tax break for liquor distillers in Puerto Rico and the Virgin Islands, and extend measures authorizing the disclosure of tax-return information to combat terrorist activities and crack down on student-loan scofflaws.
Deciding How to Slice the Budget Pie
Congress also returns to a pair of unfinished 2005 spending bills, and GOP lawmakers hope to overcome numerous problems to meet one of their big budget goals: restoring order to the appropriations process.
Last month, the House rejected a $142.5 billion spending bill for health, education and labor programs, a surprise defeat that Appropriations Committee members blamed on too many painful cuts and too few pork-barrel projects to ease the pain. They're hoping to win back rural Republicans by adding about $50 million in rural health care funding. Another unresolved question is how Congress will provide heating assistance for low-income people. Natural gas and heating oil bills are expected to spike this winter, but the House and Senate have yet to agree on a funding approach, although lawmakers have said money will be available.
The other outstanding bill is for defense spending. The legislation has stalled mainly because it includes new rules on interrogating suspected terrorists. Sen. John McCain (R-Ariz.) attached the rules in response to reports of mistreatment of detainees in U.S. military custody. The White House strongly opposes the provision, but it has wide bipartisan support.
House and Senate leaders also are eyeing the $403 billion 2006 defense bill as a vehicle for last-minute measures, such as an across-the-board spending cut that House conservatives are seeking to show supporters that they are serious about belt tightening. A 1 percent cut would translate to about $8 billion in savings, assuming that only a few areas, mainly those related to homeland security, are spared the ax. Another option for savings would be to rescind money that has been appropriated but not spent.
But Senate leaders want to add money to the defense bill to combat a potential avian flu pandemic. President Bush requested $7.1 billion in such funding -- nearly enough to cancel out a 1 percent across-the-board cut. Senate Appropriations Chairman Thad Cochran (R-Miss.) also told the Jackson (Miss.) Clarion-Ledger that he would seek to more than double Bush's $17.1 billion request for more Gulf Coast rebuilding aid.