House Passes AMT Relief for 25 Million Taxpayers

The House Wednesday approved a bill that would protect about 25 million taxpayers from paying a tax that originally was meant for only the very wealthy.

The House passed the alternative minimum tax relief bill on a vote of 233-189 over the objections of the White House, which does not like its revenue raising measures.

One provision would require private equity fund managers to pay ordinary income taxes, as high as 35 percent, on their earnings instead of the 15 percent capital gains rate they now pay.

That would raise nearly $31 billion over 10 years.

"The administration does not believe that the appropriate way to protect the 26 million Americans from higher 2008 AMT liability—including 22 million that would be newly exposed to the AMT — is to impose a tax increase on other taxpayers," the White House said in a policy statement on the bill.

The House action is the opening move on what has become an annual ritual of providing temporary AMT relief to millions of middle class taxpayers who would otherwise have to pay it.

The bill has to go to the Senate where raising taxes on equity fund managers faces stiff opposition from Republicans and some Democrats.

The AMT was first enacted in 1969 to ensure that about 160 very wealthy people paid at least some federal income taxes.

But because of the effects of inflation, more middle-income taxpayers face paying it and many do not know they owe it until they hear from the Internal Revenue Service.

Congress and the White House have been unable to grapple with the long-term cost to the treasury of providing permanent AMT relief.

The bill would provide AMT relief through 2008 at a cost of about $62 billion.

Permanent AMT relief would cost the federal treasury about $900 billion over 10 years, a significant amount that would make the long-term U.S. deficit outlook more bleak than it already is.

"Every year we have to come down and patch (the AMT) because, politically speaking, no one is going to go home and say we did nothing about it," said Ways and Means Committee Chairman Charles Rangel, a New York Democrat.

The administration and congressional Republicans want to extend AMT relief without raising other revenues to cover the cost.

Democrats argue that without the new revenues, the government would have to borrow more money from China and other countries, adding more red ink to the $9.4 trillion national debt.

The House bill also would deny big oil companies a tax break given to manufacturers for production in the United States.

It also would limit the ability of multinational corporations to shelter income earned in the United States through offshore tax havens.

Another revenue raising measure would require payment service companies like Ebay Inc.'s PayPal to report some payments to merchants to the IRS.

Backers said the provision would improve compliance by sellers and raise almost $10 billion over 10 years.