By a party-line vote, the House Ways and Means Committee on Thursday approved legislation (H.R. 3996) that would prevent the Alternative Minimum Tax (AMT) from expanding its reach to millions of more families for one year. Ways and Means Chairman Charles Rangel (D-NY) had hoped earlier this year to pass his larger plan to address the AMT permanently, as discussed above, but some lawmakers oppose his provisions to pay for AMT reform and would rather increase the budget deficit. As a result, Chairman Rangel introduced this smaller bill, which includes a "patch" of the AMT for one year at a cost of about $50 billion, and hopes the larger plan will be acted on sometime in the next couple years.
The smaller bill approved Thursday also includes one-year extensions of some special interest tax breaks that are technically temporary but whose extension by Congress has become so routine that Hill insiders refer to them as the "extenders." The extenders cost about $21 billion.
Help for Low-Income Included
Also included is a change in the Child Tax Credit rules to make it easier for poor families to benefit from the credit, as well as a small additional standard deduction for middle-income homeowners. These two provisions combined cost about $4 billion over ten years.
Rangel Stands Firm -- Tax Cuts Will Be Paid For By Closing Carried Interest Loophole, Among Others
The smaller bill borrows some very good ideas from the larger plan in order to pay for the one-year AMT relief and the extenders. One of these provisions would eliminate the "carried interest" loophole for private equity fund managers, which would raise about $26 billion over ten years. Another provision would limit the ability of private equity fund managers to set up deferred compensation arrangements in offshore tax havens to avoid taxes, and would raise about $24 billion over ten years.
Another provision would delay the implementation of a tax break that was passed in 2004 but is not yet in effect. The 2004 tax break essentially expands a loophole allowing multinational corporations to take U.S. tax deductions for interest payments that are really foreign expenses. The provision delays this tax break several years and raises $25 billion over ten years.
Republicans Say Their Own Tax Laws Will Lead to the Biggest Tax Increase in History
Republicans members of the committee were hostile to the offsets and argued during the markup of the bill that the AMT should be repealed and the revenue should not be replaced because it was never intended to be collected. This ignores the fact that the Bush Administration intentionally decided not to permanently fix the AMT when it enacted tax cuts in order to mask the true cost of those tax cuts. It also ignores the fact that the Bush Administration, like Congress during both Republican and Democratic control, has budget plans that assume the expanded AMT revenue (based on current law under which the AMT will expand its reach) will be collected.
Congressman Earl Blumenauer (D-OR) pointed out the irony of the minority party's argument. Republicans at the hearing seemed to say that the expiration of the Bush tax cuts -- which was written into the laws enacted by President Bush and the Republican Congress, along with the scheduled expansion of the AMT that was intentionally left in place when Republicans controlled Congress and the White House -- would lead to the "biggest tax increase in history." Even if we believed that allowing the tax laws to exist as they're currently written could constitute a tax increase, it would be hard to understand why the complaints are coming from the party that held power and passed a major tax bill every year for six years.
Meanwhile, even the conservative Washington Times has editorialized that "it seems disingenuous" for the GOP to call Rangel's plan a tax hike.