House Passes AMT Fix

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.

Bill Easing Tax Clears House [NYT]
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  1. CyGuy says:

    If Investment Bankers have a $51M tax loophole, then I am all for closing it to benefit $21M middle-class taxpayers. I do wonder however whether those investment bankers will really be making that much income THIS year given the meltdown in the mortgage market.

    Perhaps they should bolter the loophole fix with a surtax on excess profits made by oil companies and their executives?

  2. AD8BC says:

    How about this…

    We start reducing federal taxes… and we don’t fund them by raising someone else’s taxes. We fund them by stopping pork barrel spending.

    Just a thought.

  3. doctor_cos wants you to remain calm says:

    How about the billions (with a “B”) that we’re pouring down Halliburton’s gullet over in Iraq?

    Oh and here’s some token sympathy for the investment bankers. Maybe they can try and use manditory binding arbitration with the gubbamint to get out of paying.

  4. Adam291 says:

    To me, it just shows that the Republicans would rather let the AMT stand as is and result in a tax hike for 23 million middle class Americans than to give a hike to the super-rich. I think they should rethink their priorities.

  5. JustAGuy2 says:

    Please at least try to get it right. The Carried Interest loophole benefits private equity and hedge fund managers, not investment bankers. Yes, they’re all in finance, but they serve completely different functions. It’s kind of like saying Consumerist writers are just the same as Apple engineers, after all, they all work with computers, right?

  6. humphrmi says:

    @Adam291: Actually, if you read about it carefully, the main complaint of the Republicans is that the Democrats insisted upon including tax increases in order to fund the AMT patch. That’s in keeping with the Dem’s promise to fund everything somehow. There’s something to be said for that, but…

    On the other hand, the Republicans feel that this is a tax that should never have been levied against the middle class to begin with; it was never intended to do that and it’s only because the law is faulty that it does (without a “patch”). So their strategic position is that the AMT should be repealled or rewritten to only apply to those making (now) more than about $250,000 / year (threshold varies depending on who you ask, but generally no lower than $200K).

    And, the Republicans don’t feel that other people’s taxes should be raised to pay for repealling (or even patching) what is a faulty tax to begin with.

    The Dem’s position is more financially feasible and Repub’s position is more morally feasible. Take your pick.

  7. MyCokesBiggerThanYours says:

    20% is quite a tax hike. I doubt the Consumerists readers would would sit easy if it were their money.

  8. Falconfire says:

    @humphrmi: Well at this point financially feasible wins. Im sorry but the fact that Canada has a better dollar than us has a lot to speak about how “conservitive” this republican party is.

    Especially since prior to Bush Jr. We had a balanced budget that could have easily paid for a war in Afghanistan as well as the beefing up of our security. But nooooooo someone had to pay away money he didnt have to buy votes for the next election by “lowering taxes, and giving out credits”… and now all of us are royally screwed up the ass with no lube.

  9. Buran says:

    @MyCokesBiggerThanYours: Thing is, it IS our money that’s being taken from us by this ridiculous tax. This is not the 1960s, so we shouldn’t be held to 1960s standards. I’m all for taxing people who can afford it so that those who can’t aren’t taxed into oblivion.

  10. mantari says:

    I read the article, and I still don’t know. Where is the (approximate?) AMT line (in terms of single filer annual tax threshold), and where are the proposing moving it to?

  11. canerican says:

    The top 1% pays 90% of the taxes. They should pay more? There’s a good reason why the economy has grown well since President Bush’s tax cuts…
    Why tax the rich, the rich give us jobs. If we overtax them they will go somewhere where they aren’t taxed to death, and I won’t have a job.
    The problem with this neo-socialist wave that is sweeping the country that in socialism everyone is poor. At least with capitalism some people get to be rich.

  12. marsneedsrabbits says:

    @MyCokesBiggerThanYours:
    20% is quite a tax hike. I doubt the Consumerists readers would would sit easy if it were their money.

    Where do you see a 20% tax hike? 15% to 35% is a 133% increase, not 20%.
    If you pay 15% tax on $100.00, your taxes are $15.00.
    If you pay 35% tax on $100.00 your taxes are $35.00.

    Increasing from $15.00 to $35.00 is more than double your previous tax rate, not a 20% increase. A 20% increase would be from 15% to 18%.

    This tax increase is over 100%.

    But yeah, you are correct in saying that not many people would sit easy if that was their money.

  13. canerican says:

    Why can’t we reduce spending instead, I mean, Congressmen are bragging about their pork. The sad part is that the Democrats that were elected in order to stop pork haven’t done that, in fact the only 4 Senators to vote for 100% of anti-pork measures have been Republicans, 4 out of 5 to vote for less than 20% have been Democrats. Ironic huh?

  14. humphrmi says:

    @Falconfire: Yes but you can’t fault Republicans for taking the moral high ground here. They’re talking about adding taxes to people’s funds that some middle-class taxpayers retirement funds are invested in.

    So under the Democrat’s plan, they’ll give us a roughly $2000 (depending on your personal factors) tax break by patching the AMT, then add that much in taxes to funds that our retirement plans are invested in.

    How is that a “tax break”?

  15. BigNutty says:

    I agree with my representative David Drier R-Calif. that it’s lunacy to pay for a tax that was never intended.

    Stop pork barrel spending and think of the money that would be saved.

    CANERICAN, You also noticed that it was only 4 Republicans that voted for 100% anti-pork measures. Where were the Democrats that were supposed to take care of this?

  16. Womblebug says:

    *cough*FairTax*cough*

  17. RumorsDaily says:

    My question is, why would be giving a deduction to people in states without income taxes. They’re already getting the benefit of no state income tax, and now we’re giving them a federal benefit on top of that? I must be missing something.

  18. canerican says:

    @BigNutty: I think you misunderstood. That’s my point, the Dems aren’t voting on their own measures.

  19. Lordstrom says:

    The bill, said House Speaker Nancy Pelosi, will enable Congress ”to plant a flag for fiscal responsibility.”

    AAAAAAAAAHAHAHAHAHA. Oh Your Worship, how you make us laugh so.*wipes tear*

    Anyway, this was a thinly veiled attempt by Democrats to raise taxes on a specific group of people they deem evil. They could simply abolish the AMT, but abolishing any tax is out of the question for them unless it’s replaced. After all, it’s their money. Right?

  20. Grrrrrrr, now with two buns made of bacon. says:

    If they’re going to continue implementing the AMT, then the IRS should update the income tables to reflect income levels in 2007. That seems pretty simple.

    (the AMT) was intended to target 155 high-income households that had been eligible for so many tax benefits that they owed little or no income tax under the tax code of the time” (Wikipedia) That time was 1970.

    How about sticking with the original intentions of the AMT, which was to prevent the uber-rich that had so many loopholes that they weren’t paying any taxes? This seems like a simple case of sticking to the original intent of the regulation. The AMT wasn’t even meant to tax most of the rich…only those who managed to finagle themselves out of paying little or no taxes at all.

  21. Logan26 says:

    @Falconfire:

    I’m sorry, but I like my money were it belongs, in my pocket. The problem with democrats is that they just dont raise taxes on those who can really afford it(the rich) but also on those who can least afford it, middle class and lower. Dems would like it if they could collect 50% from everyones paychecks. Personnally, a 27-30% flat tax with no loop holes, no way to lower it with deductions with one excrption, mortgage interest deduction which everyone benifits from who has bought and is paying for their own home.

  22. swalve says:

    @lorddave: Are you the GOP cut-and-paste bot for the day?

  23. forever_knight says:

    @canerican: There’s a good reason why the economy has grown well since President Bush’s tax cuts…

    what country are you living in? P.R. of Shelbyville? the U.S. economy has been tanking for many years now. the snowball has just grown large enough recently that common folk are taking notice. when will you notice?

    p.s. those tax cuts were and are a fucking joke that did nothing but drain the treasury. tax cuts without cutting spending is just stupid.

  24. ideagirl says:

    @canerican: “There’s a good reason why the economy has grown well since President Bush’s tax cuts”

    I don’t think you are living in the same United States that I am…where I live, the economy is in the toilet.

  25. Falconfire says:

    @Logan26: Um hi thats EXACTLY what the Democrats are doing. They are shifting the tax over to the rich who the tax was meant to be on in the first place. We are not talking about retirement funds here, we are talking about a tax on people who are investing a couple a mil on something… not 20,000.

    But the truth is you can not CUT a tax without replacing it in our economy as of now. The only way you could, is to cut spending. Well since over 75% of our current budget is either earmarked on the war, or being diverted from what it was intended to be spent on for the war (like ALL of the 2007 No Child Left Behind state funding money) You can see what we have to cut to be able to cut taxes…

    Oh but god forbid we get out of the war…

  26. humphrmi says:

    @Falconfire:

    Well since over 75% of our current budget is either earmarked on the war

    Uh, I suggest you get your facts strait before you throw out those numbers. The total defense budget, including Iraq, Afghanistan, and all other non-war operations for 2007 is 699 Billion dollars out of a total 2.4 Trillion dollar budget. That works out to 29% maximum.

    Pork, on the other hand – things like entitlements and paying for pet projects – amounts to 669 Billion dollars, almost just as much as the entire defense department.

    [en.wikipedia.org],_2007

    I agree with others here, cut pork before you steal from Peter to pay Paul.

  27. humphrmi says:

    By the way, don’t get me wrong, I’d love to cut that defense number down significantly too. But before you go saying “We’re spending 75% of our current budget on the war”, I suggest you confirm those numbers first. I did.

  28. jstonemo says:

    If you were to look at the actual tax revenue dollars, you would see that the govt. is taking in more actual dollars after the tax cuts than before the tax cuts. It is basic economics that if you let the producers in a country keep more of their money, the taxable basis grows thereby bringing in more actual dollars to the treasury. For instance, corporate tax payments are expected to exceed $300 billion vs. $131 billion from 3 years ago.

    The problem is that Congress is spending it at a faster pace than the tax revenue grows. The govt. spends more money on Health & Human Service and Social Security than it does on the Dept. of Defense. Of course, we can definitely blame it on Pres. Bush and the Repubs that were in control of Congress for the bloated and excessive additions for Medicare for a large increase in spending that will offset the increased tax revenue.

    People need to educate themselves on how economies work and stop listening to the nightly news talking points that are used to keep the populace scared and ignorant.

  29. badgeman46 says:

    The democrats think you are rich when you make 70k, hence the amt. Pay up or vote republican.

  30. synergy says:

    Son of a biscuit! I get the tuition and no-tax state deductions! Crap!

  31. gingerCE says:

    I’m all for getting rid of the AMT–it needed to go, but I agree that raising somebody else’s taxes (which I hope doesn’t hurt people’s retirement and investments) is not the answer. Plus if Bush vetoes this, they don’t have enough of a majority to override the veto so it’s a mute point. Couldn’ they just raise the AMT for a higher income (those making 500K or more) and increase it by a couple percentage points? To me, that makes more sense.

  32. Amelie says:

    The irony is the AMT was created to stop the rich from not paying taxes, but it seems some people have no problem with the middle-class funding the tax cuts for rich hedge-fund and equity managers. I believe the tax increase on their interest is called payback.

  33. Amelie says:

    @humphrmi: I always listen to people who use Wikipedia to make their points.

  34. MyCokesBiggerThanYours says:

    @marsneedsrabbits: Corrent – Was just thinking points. Thanks for clearing up the math.

    Buran – for most of us, its not our money. THey are moving it so fewer are pay more.

  35. MyCokesBiggerThanYours says:

    @RumorsDaily: taxes must be equal state to state. I liv ein CA and we pay alot of taxes. But, the state takes the amount you pay to the feds off your adjusted income adjusting for the fact that we are taxed more in our state. Most states do this.

  36. forever_knight says:

    @jstonemo: your logic is flawed. there are several possible reasons why corporate tax payments are expected to exceed what they were several years ago. while i agree that letting consumers have more of their money up front will generally lead to more tax money for uncle sam, attributing it to the $300pp tax cut is quite a leap. the fact is that the tax cut was not accompanied by a equal cut in spending. hence, it was fiscally irresponsible.

  37. mac-phisto says:

    first, i want to say that it sucks that this measure will fail simply b/c it makes combat pay tax exempt (instead of the old method which requires congress to authorize exemption for certain war zones). hell, i’d support a measure that made the pay of any active duty enlisted soldier tax-free.

    @canerican: i’m no socialist, but i think you might want to take a quick look at the germans & the swedes. they seem to be handling socialism just fine. all i’m saying is the “everybody’s poor” quip…well, it’s not entirely true. i think you might be confusing socialism with communism.

    @jstonemo: yes, thank you for your review of trickle-down 2. here’s why it doesn’t work: the tax breaks are in no way connected to “trickling down” the benefit. companies are saving a few billion dollars & then using that extra money to build a factory…in china. & recruit workers…in china. & ship their products…from china.

    i’m all for big money tax breaks, but they must be connected to a reinvestment in our economy…not someone else’s. otherwise, america’s taxpayers are footing the bill for our own demise. the feds should be taking a page from the states here. raise your hand if you state has a program to allow businesses to move in tax free (or for a reduced tax rate) for X number of years.

    all i’m saying is that it’s kind of hard for the money to trickle down when the senior executives are running away with it.

  38. swicklund says:

    GOOD GRIEF PEOPLE! Why are you all swallowing the Republican line that we are unfairly raising taxes on the rich?!?
    Do you realize that this merely brings the tax rate for carried interest in line with the rate that most upper middle class individuals pay?
    Why were these investment bankers shown preferential treatment in the first place?
    What do they bring to society that you and I should foot their portion of the bills?

  39. Mojosan says:

    >>>>>>
    What do they bring to society that you and I should foot their portion of the bills?
    >>>>>>

    Are you speaking of the approximately 50% of Americans who pay zero taxes?

    I agree. What are they bringing to society that I, and my family, should foot their portion of the bill?

  40. GearheadGeek says:

    re: the origin of the “carried interest” loophole: Originally, “carried interest” meant the gain the fund manager made off his own holdings in the fund. Somewhere along the way a sharp tax lawyer found a way to twist it to mean the management fee the fund manager is paid.
    @humphrmi: The only way I see that this might “add that much in taxes to funds that our retirement plans are invested in” would be if the greedy fund managers increase their management fees to offset the amount of tax they suddenly (fairly!) have to pay on their FEE INCOME from the management of the fund. If some do this, smart investors will shift their money to funds with lower fees and those raising the fees will price themselves out of the market. This isn’t going to eliminate the tax break for actual investors’ long-term capital gains. Also, your assertions about the percentage of the budget earmarked for the Iraq debacle may be correct, but remember that in EVERY YEAR of this escapade the Shrub has gone back to the till for more money off-budget. What’s worse than tax-and-spend Democrats? Borrow-spend-and-waste Republicans. They’re all playing shell-games with OUR MONEY, it’s time for real change.

  41. cef21 says:

    Carried interest is *not* exclusively paid by “investment bankers.” It’s also paid by angel and venture capitalists. The end result is that VCs will take fewer chances on start-up companies, so fewer such companies will survive and grow.

  42. SadSam says:

    I’d like to see everyone pay less in taxes but with all the boondoggle projects we’ve got to pay for and Cheney’s retirement fund to pump up, I don’t see that happening.

    I do think that taxes should be generally fair (ha-ha) and people who make their money off of investments (hedge fund managers and socialites) should pay at least the same in taxes as us working stiffs if not more.

  43. Vicky says:

    @RumorsDaily: By way of explanation: the deduction for states that do not have income taxes is to offset the state sales tax – where I live, it is 8.25% atop every non-food purchase. For the past few years the IRS has provided an estimation formula based on your sales tax rate (which tends to skew low) or you can itemize if you have good records or have, for instance, bought a car or some such which may have hit you with a multi-thousand dollar tax.

    The “benefit” of not having state income tax is, imho, purely a matter of less paperwork/less hassle. Between sales tax and property tax I imagine it’s a wash, financially. That’s not to say that some states don’t tax more than others (and accordingly some states have better services and infrastructure), but it’s not as though some states have taxes and others just don’t.

    If this is not what you were asking about I apologize – just trying to be helpful.

  44. asherchang2 says:

    The middle class really does need a break. No one ever gets help unless they’re really, really poor.

    On a random note, sales taxes suck. They stifle the economy and harm the poor, yet no one seems to mind them.

  45. humphrmi says:

    @asherchang2: I bet the poor mind them (sales tax increases) but they don’t have a loud enough voice. Economists have been telling congress and presidents for years that regressive taxes (like sales taxes) hurt the poor more than anyone else.

  46. barty says:

    Well, let’s see, our dollar is in the crapper, yet we levy a tax increase on investment bankers, who want to pump capital (thus RAISING the value of our currency, for the financially inept) into our economy. Great move.

    But I agree with the others that say instead of looking for ways to further fleece the pockets of the American people, let’s look for ways to cut the federal budget by 10% or so as a start. That would work wonders on helping the value of our currency as well.

  47. Tonguetied says:

    The irony is that while supposedly raising the tax rate on carried interest is supposed to offset the decrease on the AMT that assumes that all these investment bankers will continue to do business the same way they did before the taxes were raised.

    Changing a tax rate will affect the taxed behavior. Remember the luxury tax on yachts that got passed under Bush the first? It was supposed to raise lots of revenue. Instead it destroyed the American yacht industry. Revenues plunged. I predict that this tax increase won’t raise any additional revenue at all and that in fact there will be a massive drop off.

  48. Pop Socket says:

    @canerican: @Mojosan: I have to call B.S. on both these stats. If the top 1% already paid 90% of taxes, it’d be child’s play to make them pick up the last 10%. And depending on how you define taxes, every person with a job pays FICA, which is well more than half the country, unless you’re counting kids as tax freeloaders.

  49. Morgan says:

    @Mojosan: They’re bringing the cheap labour that lets you get goods cheaply. Taxing them would mean they would need a higher salary to get by, raising the price of pretty much everything down the line. But if you want to increase inflation, tax away.