Oct. 17, 2007 – 9:34 p.m.
House Ways and Means Chairman
Rangel, D-N.Y., also plans to separately introduce a broader tax package, which he has labeled the “mother of all reforms.” That wide-ranging proposal would include provisions to overhaul the alternative minimum tax (AMT), increase rates on top wage earners, raise taxes on private equity managers, remove targeted corporate tax provisions and lower the corporate tax rate.
However, Rangel conceded Wednesday that consideration of the broad package — with an estimated $1 trillion price tag — may have to wait until next year.
“We’re so proud of our product that vetting it would bring us more support than fast-tracking it,” he said.
Until Wednesday, Rangel would not discuss advancing a temporary “patch” to blunt the reach of the AMT, preferring to tout the wide-reaching overhaul. But with the IRS nearing its deadline for printing 2007 tax forms, Rangel said he must act.
“I can’t leave the taxpayers not knowing,” he said.
Rangel’s declaration also could curtail criticism from Republicans, who have called for quick action on the AMT to prevent taxpayer confusion and IRS problems.
Yet the narrower bill still faces difficulty because offsetting its $65 billion cost could prove difficult. Rangel did not specify offsets, yet his spokesman said he will introduce a revenue-neutral bill.
The AMT patch could be the biggest test yet for the Democratic majority’s commitment to their pay-as-you-go budget rules, which require tax cuts to be balanced by revenue increases or spending reductions.
During a closed-door, bipartisan meeting Wednesday, Senate Finance members discussed the possibility of not offsetting the cost of the AMT patch, which would increase the deficit by $50 billion in 2007.
“It’s wildly irresponsible what’s going on in there,” said frustrated deficit hawk
Panel members did not reach a conclusion on their AMT strategy, several said afterward. Senate Republicans argue against needing to offset the cost of the AMT patch, saying it is money that the government never intended to collect.
The issue results from the parallel tax system’s complex history.
Congress created the AMT in 1969, after determining that 155 high-income Americans were using legal deductions and credits to eliminate their tax liability.
But the tax has never been indexed for inflation, and without adjustments its reach would extend into the middle class.
If Congress does nothing, the AMT will affect 23 million taxpayers for 2007, up from 4 million in 2006. Some families earning $75,000 could pay a tax originally targeted at the wealthy.
The fate of this year’s AMT patch, and whether it is offset, may depend on the Senate.
Depending on how politically unpalatable the offsets are, Democrats may have trouble mustering 60 votes to advance a revenue-neutral AMT patch. Yet Republicans, in turn, may have trouble cobbling together the 60 votes necessary to waive the pay-as-you-go rules, because Democrats campaigned on fiscal discipline.
“The effort is to try to pay for it as much as you can pay for it and find where you can pay for it,” said Sen.
Rangel’s narrower AMT bill also will include $15 billion in one-year extensions of expiring tax provisions.
Several popular tax provisions expire Dec. 31, including the research and development tax credit, the deduction for state and local sales taxes and depreciation rules for some retail stores and restaurants.
Yet the AMT and the expiring provisions are not the only tax issues lingering this year. Tax policy is entangled in the pending farm bill (