- The Washington Times - Wednesday, July 11, 2007

House Democrats’ promise to permanently protect millions of middle-class families from a mostly unknown tax increase is faltering before it’s even unveiled.

Senate Democrats prefer a Band-Aid approach to delay for just a year or two the alternative minimum tax, or AMT, from adding $2,000 in taxes on average to families with incomes between $100,000 and $200,000 a year.

That way Democrats wouldn’t have to go into next year’s election after having tried — and likely failed — to raise income taxes on taxpayers making $500,000 or more to almost what they were before President Bush took office.

Rep. Charles B. Rangel, New York Democrat and chairman of the tax-writing House Ways and Means Committee, would like to rewrite the AMT to once and for all prevent it from ensnaring about 20 million additional middle-class taxpayers. He and Rep. Richard E. Neal, Massachusetts Democrat, were to make their plan public in May, but now that’s not likely to occur before September, if at all.

The problem is that Mr. Rangel’s and Mr. Neal’s plan is a nonstarter in the Senate, where the tax-writing Finance Committee’s chairman, Sen. Max Baucus, Montana Democrat, is up for re-election next year in a state whose voters overwhelmingly favored Mr. Bush in 2004.

Mr. Baucus doesn’t want anything to do with the Rangel-Neal proposal, which would also impose a new 4 percent or so surcharge on incomes above $500,000 a year, effectively raising the marginal tax rate on those with half-million-dollar incomes back to 39 percent, where it was in 2000.

The tax increase on the wealthy would raise $800 billion over 10 years, enough to both fix the AMT and spread smaller benefits to lower-income taxpayers.

Mr. Baucus is considering a one- or two-year alternative that would protect middle-income taxpayers, costing up to $50 billion a year. It would be partially paid for by closing loopholes and other changes in the tax law.

Many Democrats, including party leaders, appear comfortable with Mr. Baucus’s temporary fix rather than forcing a politically risky vote to raise taxes when the idea isn’t going anywhere in the Senate.

“If you have anything close to a marginal district, I wouldn’t touch it with a 10-foot pole,” said Rep. Paul D. Ryan, Wisconsin Republican.

The AMT was designed to make sure that the wealthiest couldn’t use tax breaks or deductions to eliminate their entire tax liability. But inflation and recent tax cuts push more taxpayers into its grasp each year, stopping about 4 million tax filers from taking full advantage of various deductions and tax credits.

More than one-third of taxpayers making between $75,000 and $100,000 a year face an AMT hit of almost $1,000 next April if the tax code isn’t changed. Taxpayers making between $100,000 and $200,000 face an average $2,000 in additional tax.

One factor complicating the Democrats’ task is the unusual dynamic involving the minimum tax. Most people don’t know of the tax, so there’s hardly a grass-roots outcry for AMT reform. At the same time, those facing tax increases are sure to rebel, especially small businesses that file as individuals.

“The people you do raise taxes on will know,” said a senior Senate GOP tax aide. “Trust me. They always do.”

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