Give me a break, a tax break — or else

A battle over the AMT
AMT relief is called, in Capitol Hill lingo, “the AMT patch.”

The AMT is a feature of the tax code intended to ensure that upper-income people do not escape the bite of the income tax by using deductions and other tax breaks.

But in states with high state and local taxes, such as New York, the AMT’s bite is especially painful.

The AMT “affects not the wealthy but in New York, at least, people making $50,000, $75,000, $100,000, $125,000 who were paying too much under the AMT,” Sen. Charles Schumer, D-N.Y., said on the Senate floor Wednesday night as he praised the inclusion of AMT relief in the financial rescue bill.

But like other parts of the tax code, the AMT pits one group and sometimes one state against another.

The AMT patch “is a huge part of the tax extenders package,” complained Sen. Jeff Sessions, R-Ala. “It will cost almost $79 billion in tax revenue, just this year alone.”

He said, the AMT patch “is also unfair to the low-tax states. High-tax states benefit much more than lower tax states such as Tennessee or Alabama, because you also can't claim deductions for state and local taxes... We need to end the bias against states that do not have high taxes.”

While critics may see some of the tax extenders as frivolous or too narrowly focused, others may be appealing to the public: for example, the extension of a job creation tax credit for areas hit by Hurricane Katrina and the extension of a building rehabilitation tax credit for buildings in the areas hit by Katrina.

Help for fishermen in Alaska
The same may be true of the tax provisions benefiting fisherman hit by Exxon Valdez oil spill: they will be allowed to use income averaging to reduce their tax liability on payments received from Exxon as part of the settlement of the litigation arising out of the 1990 spill.

At one point Wednesday morning it looked as if Congress might adjourn without passing the tax extenders bill.

This would have meant — among other things — that the tax credit for energy produced from windmills would have expired.

A coalition of groups, ranging from the Sierra Club to the Audubon Society to the United Steelworkers sent an urgent letter to members of Congress saying, “At risk with the possible failure of the extenders package are hundreds of thousands of jobs” and “billions of dollars in clean energy investment.”

The American Wind Energy Association was ready with factoids: To generate the same amount of electricity as today’s U.S. wind turbine fleet would require burning 23 million tons of coal. (Picture a line of 10-ton trucks over 9,000 miles long.)

Love them or hate them, the tax breaks are probably going to become law for another year. In the current circumstances it’s impossible for the House to insist that specific provisions be removed. The House must take all the tax provisions or none of them.

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