Tax News

CCH (cch.taxgroup.com) reports:

The Senate on December 6 approved a one-year patch without offsets for the alternative minimum tax (AMT) but not until after Senate Republicans rejected a House version (HR 3996) that was laden with tax loophole closers as a means of offsetting the cost. The cloture motion to limit debate on the House bill fell by 46-48 margin, 14 votes shy of the necessary 60 votes to block a filibuster by Republicans.
Following the failed cloture vote, a visibly exasperated Senate Majority Leader Harry Reid, D-Nev., offered to hold a unanimous consent vote on a one-year AMT patch (Baucus amendment No. 3804) without offsets, and without addressing expiring tax provisions commonly referred to as "extenders". Senate Budget Committee ranking member Judd Gregg, R-NH, however, lodged an objection, which under Senate rules immediately blocks a unanimous consent agreement. Gregg had earlier attempted to introduce a finite number of tax-related amendments into the debate over the House bill but was thwarted by Democratic leaders. Regarding extenders, Senate Finance Committee ranking member Charles E. Grassley, R-Iowa, later said on the Senate floor that they would have to defer until 2008 any action on the extenders package.
Minutes after Gregg objected to the first unanimous consent agreement, Reid told reporters he would attempt another unanimous consent agreement in the afternoon, but that never materialized. He then told reporters: "The way things are going, I don't know if the patch will be put in place." Senate leaders, however, worked out an agreement early in the evening and held a roll call vote on the patch. The measure passed by an 88-5 margin.
The House must now approve the amended version of its bill before President Bush can sign it into law. However, passage in that chamber is by no means assured. On December 5, the 31 House members of the fiscally conservative Democratic Blue Dog Coalition publicly reinforced their commitment to pay-as-you-go (PAYGO) budget rules enacted by lawmakers at the start of the 110th Congress. In a letter to Senate Democratic leaders, Rep. Mike Ross, D-Ark., told the lawmakers that waiving PAYGO in the face of political pressure was fiscally reckless. "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," said the Blue Dog co-chair for communications.
Blue Dog Coalition members have promised to vote against any legislation that is not fully offset and they called on Senate Democrats to follow suit. "We will not pass the burden of unmanageable debt on to our children and grandchildren just so we can avoid the difficult decisions that Americans expect their government to make," said Ross.
House Democrats Call for AMT Offsets
House Ways and Means Committee Chairman Charles B. Rangel, D-N.Y., also reiterated House Democrats' intent to pay for the measure. "We had hoped the Senate would support House-passed legislation to provide AMT relief without adding to the deficit," said Rangel in a statement following the Senate vote. "As I outlined earlier today, I am drafting amendments to the legislation passed by the Senate tonight to address the political opposition in their body. The House will consider these amendments so that we may give the Senate another chance to do the right thing and pass responsible AMT relief."
House Democratic leaders are still hoping for legislation that would provide relief from the AMT that meets PAYGO budget rules and includes a tax increase to cover the cost of the bill. In comments to reporters on December 6, House Speaker Nancy Pelosi, D-Calif., said Democrats would use any revenue offsets passed by the Senate to offset the cost of AMT relief. Pelosi's comments came in response to some GOP senators' reported willingness to approve a tax increase to pay for a group of extenders that expire in 2007.
"It is reported that the president and the Republicans in the House and Senate, while they speak about removing the burden of the AMT, do not suggest how we avoid borrowing the money to do so," Rangel said. "They have not offered any solutions to raise the money or cut spending to cover the cost of this critical tax relief. They do not suggest anything and as a result, we are getting nothing."
Rangel said that he would pursue a revenue offset that would change the rules for offshore nonqualified deferred compensation for hedge fund managers. "At this time, we are looking to close a loophole where billions of dollars in offshore funds have escaped taxation," he said. "Closing this loophole has already been accepted by the House and it is my understanding that it will be received favorably in the Senate as well."
At an AMT panel discussion hosted by the Committee for a Responsible Federal Budget and the New America Foundation, House Majority Leader Steny Hoyer, D-Md., said lawmakers have "plenty of blame to go around for letting this AMT problem fester. But the bottom line is that we need a solution --not finger-pointing." He rejected Republican efforts to pass AMT relief and add the costs of the $50 billion cost to the deficit and national debt.
According to Hoyer, GOP lawmakers are being fiscally dishonest in their balanced budget projections by calling for AMT relief without an offset, while still using the increased revenues from AMT to make their other tax cuts appear more affordable. "If we are going to reduce the revenues from the AMT that were assumed in the plans to balance the budget by 2012, we need to either replace those revenues or reduce spending if we are serious about balancing the budget," he said.
By Jeff Carlson and Stephen K. Cooper, CCH News Staff
CRS Report --Alternative Minimum Taxpayers By State: 2003, 2004, and Projections for 2007, Updated October 17, 2007
AMT Returns by State Comparison of 2005 to 2007