The House voted 216-193 on Friday to keep 21 million middle-class taxpayers from paying the alternative minimum tax (AMT) next year. Republicans opposed the measure because the bill is funded by raising the tax on carried interest, paid exclusively by investment bankers, from 15% to 35%.
Friday’s bill would extend AMT relief for one year, at a cost of about $51 billion. It includes another $30 billion in largely popular tax relief measures, including expanding the child tax credit, providing a property tax deduction to some 30 million families and extending a tax exemption for the combat pay of military personnel.
It extends several dozen targeted tax breaks due to expire at the end of the year, including a deduction for college tuition, a deduction for teachers’ out-of-pocket expenses and deductions for residents of states that do not have income taxes. Others benefit winemakers, employers of Katrina victims, contributors to charities, and state lawmakers.
The controversies come over some $80 billion in new tax revenues required under House Democratic rules that tax cuts or spending increases be offset so that the federal deficit does not grow.
The bill, said House Speaker Nancy Pelosi, will enable Congress ”to plant a flag for fiscal responsibility.”
But anti-tax Republicans said the AMT was a mistake and thus offsets were unneeded. ”What absolute lunacy,” said Rep. David Dreier, R-Calif., ”paying for a tax that was never intended.”
The AMT was created to force wealthy people who could afford
happiness, yachts and expensive lawyers to pay at least some taxes. Because the parallel tax wasn’t indexed for inflation, middle-class taxpayers are increasingly ensnared by the AMT as they become wealthy by 1960′s standards.
President Bush promised to veto the bill, though it remains uncertain if it will even clear the Senate. The uncertainty has the IRS in a tizzy as it prepares to print next year’s tax forms. If Congress doesn’t provide clear guidance on the AMT by the end of the year, up to 50 million taxpayers could overpay their taxes by $75 billion.