Republican Senate leaders did not pause to admire their success in blocking energy legislation this week. On Tuesday they went on to block a proposal by Senate Finance Chairman Max Baucus (D-MT) to extend several popular tax cuts and prevent the Alternative Minimum Tax (AMT) from affecting more taxpayers. The proposal was to be offered as a substitute for the House-passed bill, H.R. 6049. The first half of this bill (often called the "extenders") has a cost of $57 billion, which would be offset by revenue-raising provisions. The second half of the bill, enacting a "patch" to keep the AMT from affecting more taxpayers, has a cost of around $64 billion but this cost would not be offset.
The AMT became a major issue in negotiations over the fiscal year 2009 budget resolution between the House, which wanted to use procedures that would make it easier to pay for an AMT patch, and the Senate, where Democratic leaders thought they did not have the votes for such a move. As explained in the report issued by CTJ, the majority of the benefits of AMT relief goes to the richest 10 percent of taxpayers. It seems unfair that the Senate wants to pay for AMT relief by increasing the national debt, which could very likely be paid off by the middle-class in the long-run (in the form of cuts in public services or higher taxes across-the-board). The final budget resolution that the House and Senate approved last week did not include the procedural maneuvers that House Democrats had pushed for but instead included a point of order against increasing the deficit that may have little impact on how Congress addresses the AMT.
While Senator Baucus seems to have given up entirely on offsetting the cost of the AMT patch, he and the Democratic leaders in the Senate do want to offset the cost of the extenders, and this is what prompted the filibuster. Anti-tax lawmakers have argued that extending tax cuts that are currently in effect really amounts to an extension of current tax policy and therefore should not require any measures to replace the revenue lost. CTJ's recent report on the extenders bill explores the implications of this argument. Under this logic, Congress could pass any temporary, one-year tax break and then the following year make that tax break permanent without offsetting or even considering the revenue lost beyond that first year. This makes a complete mockery of the idea of fiscal responsibility.
Even Business Is Turning Against the Anti-Tax Lawmakers
Senator Baucus has touted a letter from 300 large companies in support of his approach. The companies seem to be far more worried about the loss of various tax breaks included among the "extenders" than they are about the revenue-raising provisions, which won't affect most of them. One of the revenue-raising provisions simply delays the implementation of a tax break that has not even gone into effect yet (worldwide interest allocation) while another prevents private equity fund managers from using offshore schemes to avoid taxes on deferred compensation. Baucus has told the BNA Daily Tax Report that even the private equity fund managers don't mind this so much because they are much more afraid that Congress will attempt to close their cherished loophole for "carried interest," a loophole that House Ways and Means Chairman Charlie Rangel may target again in order to help offset the costs of an AMT patch.