House approves alternative minimum tax bill

By Joanne Kenen

WASHINGTON (Reuters) - The House of Representatives on Wednesday gave overwhelming final approval to a bill that would ensure millions of middle income taxpayers do not become ensnared by a tax originally designed for millionaires.

The bipartisan vote was 352-64. The Senate has already approved it, and President George W. Bush backs it.

The majority Democrats lost support from "Blue Dog" fiscal conservatives in their own party because the $50 billion cost of the tax bill was not paid for. But they picked up ample support from Republicans who also wanted to stop the alternative minimum tax from hitting an estimated 20 to 25 million middle class taxpayers when they file their 2007 returns.

The AMT is a parallel tax system that throws out most of the deductions and credits allowed by the regular income tax code. People have to calculate their taxes under the two systems and pay the higher of the two bills.

It was enacted in 1969 to make sure rich people did not take advantage of so many breaks that they paid no income tax. But more middle class people have been exposed to the AMT as their incomes have risen with inflation.

The relief will ensure that most families earning less than $150,000 a year will not pay the tax. If Congress had failed to enact relief, families making $67,000 could have been subject to the tax.

Treasury Secretary Henry Paulson praised the congressional vote but predicted that action this late in the year could mean some delays for the Internal Revenue Service this tax season. U.S. taxes must be filed by April 15.

"The IRS is doing all it can to have a fully successful filing season," he said in a statement. "However, it is likely that there will be some delays, including delays of some refunds. The Treasury Department and the Internal Revenue Service will do everything possible to keep American taxpayers informed throughout the course of the upcoming filing season."

PAYING FOR AMT FIX

The bill's failure to come up with alternate sources of revenue to compensate for the impact of the temporary tax fix was the focus of the House debate.

"The president says you don't have to pay for it. Go to the Japanese, go to the Chinese and borrow," complained House Ways and Means Committee Chairman Charles Rangel, a New York Democrat. But he said Democrats were not willing to "hold 23 million taxpayers hostage because of the irresponsibility of the minority (Republicans) in not being willing to pay for this."

Rangel held out hope of permanently fixing the problem next year.

But Republicans praised fixing the tax and not paying for it with other tax increases. "At a time when many economists are worried about our economy going into a recession, now would be the wrong time for this Congress to endorse a tax increase," said Rep. Jim McCrery of Louisiana, the senior Republican on the Ways and Means tax-writing panel.

The House and Senate, both controlled by Democrats, had passed different versions of the AMT legislation, setting off an intra-party feud.

The Senate bill, which was ultimately accepted by the House on Wednesday, was not paid for. The House bill did pay for it, but by closing offshore tax loopholes for hedge fund managers. Many Republicans and the White House objected to that.