Republicans and Democrats will offer competing proposals on the House floor Wednesday to curb the impact of the alternative minimum tax (AMT) on middle-income families.
A GOP bill (HR 4227) sponsored by Rob Simmons of Connecticut would extend for a year the current exemptions from the AMT — $40,250 of income for individual taxpayers and $58,000 for married couples. Those exemptions are scheduled to drop next year to $33,750 for individuals and $45,000 for couples. The extension would cost $17.8 billion.
The AMT was imposed in 1969 to prevent upper-income taxpayers from escaping tax liability through deductions. But the alternative tax schedule has ensnared increasing numbers of middle-income taxpayers because its threshold was not indexed for inflation. Lawmakers in both parties agree a change is needed, but they have not agreed on a remedy or whether the cost to the Treasury should be offset with revenue increases.
The Center on Budget and Policy Priorities, a liberal think tank, estimated that under current law the tax will affect 11.6 million taxpayers next year, and 20.7 million in 2014. Joel Friedman, a senior fellow at the center, said that maintaining the current exemptions for 10 years would cost $376 billion.
Republicans say a temporary extension of AMT exemptions is appropriate while Congress awaits a Bush administration proposal for restructuring the AMT.
The House Rules Committee approved by voice vote Tuesday a rule for floor proceedings that would allow Democrats to offer a competing proposal.
Minority Whip Steny H. Hoyer, D-Md., said the minority will rally behind a $19.3 billion substitute amendment that would provide a one-year AMT exemption for couples with adjusted gross incomes of less than $250,000, and to single taxpayers earning less than $125,000. The Democrats say the cost of their plan could be offset by imposing new restrictions on corporate bookkeeping practices.
But Republicans say the offset provisions make the Democratic plan a non-starter. “If it raises taxes, we will defeat it on the floor,’’ said a senior GOP aide.
Hoyer hinted that many Democrats will support the legislation, even if the amendment is rejected. “It’s got to be fixed,” Hoyer said of the alternative tax.
The AMT relief measure is the second of four measures that House Republicans are advancing this spring in an effort to prevent provisions of the 2001 tax law (PL 107-16) and the 2003 tax law (PL 108-27) from expiring on schedule. The House passed on April 28 a bill (HR 4181) to extend income tax breaks for married couples.
Republicans plan to offer bills that would extend the child tax credit at $1,000 per child and retain the current income limit for the 10 percent income tax bracket. The child tax credit is scheduled to revert to $700 next year. The current limits on the 10 percent bracket — $7,000 for individuals and $14,000 for couples — are scheduled to revert to $6,000 and $12,000 in 2005.