House bids to limit special tax's reach

House bids to limit special tax's reach

	Published : Wed, 31 Oct 2007 22:58 By : Agencies Print this Story

WASHINGTON (AP) - Congressional leaders tried to assure taxpayers Wednesday that a looming tax on the middle class will not expand its reach this year, but they remained divided on how to replace the revenue it otherwise would produce.

With time running down, the House's tax-writing committee readied the year's first legislative action meant to keep the alternative minimum tax from hitting millions more Americans. But the panel's approach seemed almost certain to draw fire from President Bush and many senators.

Key tax-writers from both parties told the IRS this week that 'legislative relief is forthcoming so that no new taxpayers will be subject to the AMT for taxable year 2007.' The lawmakers, in a letter dated Tuesday, urged the IRS to begin preparing tax forms based on that assumption.

With the legislation's fate uncertain, however, the IRS asked Wednesday for more assurances.

'Until the legislation is passed and signed into law, our systems cannot be fully programmed for the proposed AMT patch,' IRS Acting Commissioner Linda E. Stiff wrote the lawmakers.

The tax was created in 1969 to ensure that a small number of wealthy people could not use tax breaks or deductions to eliminate their tax bill. But the AMT is not adjusted for inflation, and every year it applies to more people. Nearly 4 million taxpayers were subject to the tax in 2006, and the number will multiply if Congress does not act.

House Democrats say Congress should find ways to replace the billions of dollars the government would collect if the tax policy remained unchanged and continued its expansion into U.S. households.

Many senators, especially Republicans, say there is no need to do so because the AMT was never meant to reach the middle class in the first place.

'Our federal government is hooked on revenue from the Alternative Minimum Tax,' Sen. Charles Grassley of Iowa, the Finance Committee's top Republican, said in a recent op-ed in The Wall Street Journal. 'It's a destructive addiction, compounding one of the worst policy failures in the near-century of the individual income tax,' wrote Grassley, who wants the tax abolished.

House Ways and Means Committee Chairman Charles Rangel, D-N.Y., said Wednesday that Senate Republicans' posture is endangering efforts to make the one-year fix to the AMT.

If they use their filibuster powers to block the Democratic plan to replace the AMT's projected revenue, Rangel said in an interview, 'they will effectively run the Senate and the House,' even though Democrats hold the majority in both chambers.

The Ways and Means Committee was scheduled to finish crafting the AMT bill Thursday, when Democrats were to detail their plans for paying for the proposed one-year freeze.

Committee member Chris Van Hollen, D-Md., said Wednesday the main elements would involve cracking down on offshore retirement funds that wealthy Americans use as tax shelters, and taxing 'carried interest' claimed by hedge fund managers as regular income.

'We believe we need to fix a very serious tax issue for middle Americans,' Van Hollen said in an interview.

Clint Stretch, managing principal of tax policy for Deloitte Tax LLP, chided lawmakers for dealing with the AMT only one year at a time. The proposed House legislation, he said in a statement, would 'prevent 20 million American families from receiving unexpected tax bills next April.' But it also would 'put off for yet another year the hard political choices that will go with repealing this fundamentally flawed tax.'