Senate passes legislation to block tax increase

Tax not indexed to inflation
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.

Coalition urged Dems to hold ground
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.

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