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Senate Bill Blocks Middle-Class Tax Increase
Thursday, December 06, 2007
WASHINGTON - The Senate voted Thursday to block a looming tax increase
averaging $2,000 for millions of taxpayers after Senate Republicans
succeeded in thwarting a Democratic plan to also raise taxes on investors.
The Senate bill, passed 88-5, provides a one-year fix for the alternative
minimum tax but without matching the cost of the tax relief with new tax
revenues. Without the fix, an estimated 25 million people would be subject
to the higher AMT tax, up from 4 million in 2006.
The Senate vote puts it at odds with the House, where Democratic leaders,
under a principle of not adding to the national debt, demanded that the AMT
fix be paid for. Last month, the House passed legislation matching the AMT
fix and other tax cuts with about $80 billion in new tax revenues.
Senate Finance Committee Chairman Max Baucus, D-Mont., said it was not his
first choice to pass an unpaid-for bill but "this is our best choice." He
said 12 million people in the $100,000 to $200,000 income level alone would
be hit by the AMT without the fix, and "we need to stop that from
happening."
The bill now goes back to the House, where Rep. Charles Rangel, D-N.Y.,
chairman of the tax-writing Ways and Means Committee, suggested making up
the difference by closing a loophole on offshore funds that now escape
taxation.
Earlier Thursday, Senate Republicans united in stopping the Senate from
moving to the House-passed bill. The vote was 48-46 against beginning debate
on the House bill, 14 short of the 60 needed.
The Finance Committee's top Republican, Charles Grassley of Iowa, said it
was time for Democrats to abandon their "PayGo obsession," referring to the
"pay-as-you-go" principle that tax cuts or spending increases should be paid
for so as not to add to the federal deficit. With the "clean" AMT bill, "the
Senate Democratic leadership seems to realize that the AMT should not be
offset," he said.
House Democratic leaders throughout the day Thursday reaffirmed their
commitment to PayGo.
Republicans, said House Majority Leader Steny Hoyer, "complain that we pay
for this legislation by closing tax loopholes. Their solution? Just add the
costs of the AMT fix ($50 billion) to the deficit and national debt. I
absolutely reject this fiscally irresponsible approach."
Without congressional action, the IRS, unsure of the final status of the
tax, says it may have to postpone the processing of returns scheduled to
begin in mid-January. That could mean delays for millions of people waiting
for income tax refunds worth billions of dollars. The tax agency says it
will take about seven weeks after the tax is revised to reprogram and test
forms reflecting the changes.
For weeks, Democrats and Republicans have blamed the intransigence of the
other party for the delay. "The Democrats' unprecedented and indefensible
delay on this commonsense solution means the filing season will already be
disrupted," Senate Republican leader Mitch McConnell, R-Ky., said.
"They find it offensive to have to pay for these tax cuts," Senate Majority
Leader Harry Reid, D-Nev., said of Republicans. "This is a $50 billion
patch. Shouldn't it be paid for? The answer is obviously 'yes."'
The AMT was created in 1969 to ensure that a small number of wealthy people
could not use tax breaks or deductions to eliminate their entire tax bill.
But the tax was not indexed to inflation, and every year more people are
exposed to it. Nearly 4 million taxpayers were subject to this tax in 2006,
and the number is expected to multiply in 2007.
Baucus likened the AMT to Frankenstein, saying that "unless we act it will
destroy the entire tax system."
Congress has reacted by passing annual fixes to prevent the number of people
subjected to the AMT from growing.
This year, however, the first with Congress under Democratic control, that
fix has been blocked by a fundamental difference between the two parties
over whether to find ways to pay for revenues lost from the anticipated
expansion of the AMT.
House Democrats, committed to offsetting any lost revenues, passed a bill
that included $80 billion in new tax revenues, $50 billion for the one-year
AMT patch and $30 billion to extend several dozen tax credits about to
expire.
Baucus has proposed a compromise under which there would be no offset for
the AMT but there would be new taxes to fund a two-year extension of the tax
credits.
The "Blue Dogs," a coalition of 47 fiscally conservative House Democrats,
issued a statement Tuesday urging Democrats to hold their ground. "We made a
commitment to the American people to reinstitute 'PayGo' budget rules and
restore fiscal responsibility to government, and we will stand by that
commitment."
House Speaker Nancy Pelosi said Thursday she fully supported that position.
The Senate bill leaves for later consideration what to do about the several
dozen targeted tax breaks. The House bill would expand the child tax credit,
providing a property tax deduction to some 30 million families, extend a tax
exemption for the combat pay of military personnel and extend tax breaks for
teachers and research and development.
Senate Bill Blocks Middle-Class Tax Increase
Thursday, December 06, 2007
WASHINGTON - The Senate voted Thursday to block a looming tax increase
averaging $2,000 for millions of taxpayers after Senate Republicans
succeeded in thwarting a Democratic plan to also raise taxes on investors.
The Senate bill, passed 88-5, provides a one-year fix for the alternative
minimum tax but without matching the cost of the tax relief with new tax
revenues. Without the fix, an estimated 25 million people would be subject
to the higher AMT tax, up from 4 million in 2006.
The Senate vote puts it at odds with the House, where Democratic leaders,
under a principle of not adding to the national debt, demanded that the AMT
fix be paid for. Last month, the House passed legislation matching the AMT
fix and other tax cuts with about $80 billion in new tax revenues.
Senate Finance Committee Chairman Max Baucus, D-Mont., said it was not his
first choice to pass an unpaid-for bill but "this is our best choice." He
said 12 million people in the $100,000 to $200,000 income level alone would
be hit by the AMT without the fix, and "we need to stop that from
happening."
The bill now goes back to the House, where Rep. Charles Rangel, D-N.Y.,
chairman of the tax-writing Ways and Means Committee, suggested making up
the difference by closing a loophole on offshore funds that now escape
taxation.
Earlier Thursday, Senate Republicans united in stopping the Senate from
moving to the House-passed bill. The vote was 48-46 against beginning debate
on the House bill, 14 short of the 60 needed.
The Finance Committee's top Republican, Charles Grassley of Iowa, said it
was time for Democrats to abandon their "PayGo obsession," referring to the
"pay-as-you-go" principle that tax cuts or spending increases should be paid
for so as not to add to the federal deficit. With the "clean" AMT bill, "the
Senate Democratic leadership seems to realize that the AMT should not be
offset," he said.
House Democratic leaders throughout the day Thursday reaffirmed their
commitment to PayGo.
Republicans, said House Majority Leader Steny Hoyer, "complain that we pay
for this legislation by closing tax loopholes. Their solution? Just add the
costs of the AMT fix ($50 billion) to the deficit and national debt. I
absolutely reject this fiscally irresponsible approach."
Without congressional action, the IRS, unsure of the final status of the
tax, says it may have to postpone the processing of returns scheduled to
begin in mid-January. That could mean delays for millions of people waiting
for income tax refunds worth billions of dollars. The tax agency says it
will take about seven weeks after the tax is revised to reprogram and test
forms reflecting the changes.
For weeks, Democrats and Republicans have blamed the intransigence of the
other party for the delay. "The Democrats' unprecedented and indefensible
delay on this commonsense solution means the filing season will already be
disrupted," Senate Republican leader Mitch McConnell, R-Ky., said.
"They find it offensive to have to pay for these tax cuts," Senate Majority
Leader Harry Reid, D-Nev., said of Republicans. "This is a $50 billion
patch. Shouldn't it be paid for? The answer is obviously 'yes."'
The AMT was created in 1969 to ensure that a small number of wealthy people
could not use tax breaks or deductions to eliminate their entire tax bill.
But the tax was not indexed to inflation, and every year more people are
exposed to it. Nearly 4 million taxpayers were subject to this tax in 2006,
and the number is expected to multiply in 2007.
Baucus likened the AMT to Frankenstein, saying that "unless we act it will
destroy the entire tax system."
Congress has reacted by passing annual fixes to prevent the number of people
subjected to the AMT from growing.
This year, however, the first with Congress under Democratic control, that
fix has been blocked by a fundamental difference between the two parties
over whether to find ways to pay for revenues lost from the anticipated
expansion of the AMT.
House Democrats, committed to offsetting any lost revenues, passed a bill
that included $80 billion in new tax revenues, $50 billion for the one-year
AMT patch and $30 billion to extend several dozen tax credits about to
expire.
Baucus has proposed a compromise under which there would be no offset for
the AMT but there would be new taxes to fund a two-year extension of the tax
credits.
The "Blue Dogs," a coalition of 47 fiscally conservative House Democrats,
issued a statement Tuesday urging Democrats to hold their ground. "We made a
commitment to the American people to reinstitute 'PayGo' budget rules and
restore fiscal responsibility to government, and we will stand by that
commitment."
House Speaker Nancy Pelosi said Thursday she fully supported that position.
The Senate bill leaves for later consideration what to do about the several
dozen targeted tax breaks. The House bill would expand the child tax credit,
providing a property tax deduction to some 30 million families, extend a tax
exemption for the combat pay of military personnel and extend tax breaks for
teachers and research and development.
