House Passes AMT Relief; Senate Battle Next
A so-called patch to prevent tens of millions of middle-income Americans from being hit with the “dreaded” alternative minimum tax on their 2007 returns was approved by the U.S. House of Representatives today.
But it is by no means certain that it will also pass in the Senate, where it is now headed and expected to move on a fast track. “What is certain is that if Congress and the White House do not reach a compromise by the end of the year, anywhere from 21 million to 25 million middle-income taxpayers will be hit by the AMT, costing them as much as $2,000 in extra taxes,” reports the Associated Press.
The $80 billion bill is controversial among Republicans, because it offsets the reduced taxes that would result from the AMT patch with a hefty increase in taxes for private equity fund managers. Instead of being required to pay capital gains tax on the earnings from their funds, as they now do, the managers would have to pay ordinary income tax of as much as 35 percent, explains Reuters.
“The tax was created in 1969 to guarantee that a small number of the nation’s richest households pay at least some taxes,” reports the Los Angeles Times. “But because the provision was not indexed for inflation, it has threatened to pinch a growing number of Americans, forcing Congress to repeatedly defuse it. It potentially looms over families who earn $75,000 or even less, although the biggest impact is on more affluent households.”
As discussed in an earlier ABAJournal.com post, tax refunds are likely to be delayed, even if the Senate does enact AMT relief, unless it does so immediately. The ABA opposes the AMT, because it no longer serves its original purpose.
