* About 4 million pay the alternative minimum tax
* Failure to act could push that number to 33 million
* Democratic-leaning states stand to lose most
By Kim Dixon and Patrick Temple-West
WASHINGTON, Dec 4 U.S. Republicans may have some
leverage in their fiscal cliffhanger with President Barack
Obama: the threat of forcing a disproportionate number of
Democrats to pay the so-called alternative minimum tax for the
Under U.S. law, taxpayers each year must pay the greater of
regular federal income tax and the AMT. The latter requires
taxpayers to give up certain tax breaks, typically exemptions
and deductions for state and local taxes and medical costs.
Only some 4 million taxpayers pay the AMT because Congress
routinely "patches" the AMT for inflation to spare middle-income
taxpayers. Without a patch for 2012, up to 33 million taxpayers
will have to pay an AMT liability, according to the Internal
That is one in five taxpayers.
Since many taxpayers subject to the AMT live in the
Democratic strongholds of California, New York and Illinois, the
threat of a lapse may be the Republicans' strongest card after
Obama's re-election last month on a theme of tax fairness.
Obama's Democrats and Republicans, led by House of
Representatives Speaker John Boehner, have been battling while
trying to keep from falling over a $600 billion "fiscal cliff" -
a combination of tax increases and spending cuts due to be
implemented early next year.
Now at a standstill, talks on how to avert the fiscal cliff
have been largely focused on whether to renew low tax rates for
the wealthiest taxpayers along with everyone else.
"The AMT is one of the more significant pieces of leverage
that the Republicans have," said Evan Liddiard, a former tax
adviser to Orrin Hatch, the top Republican on the Senate Finance
Committee. "It will pinch harder in the blue states."
In a brief interview in the Capitol, Hatch said voters in
the Democratic-leaning states will not be amused if their taxes
go up unexpectedly.
"When they find out they are going to get hammered because
of the AMT and the lack of plan by this administration to
resolve that problem, yes, I think that will cost them (the
Democrats) a few votes," Hatch said.
Because the latest AMT patch expired in 2011, it is in some
ways more urgent to address the AMT than the Bush-era tax cuts
expiring at the end of December.
Congress last patched the AMT in the lame-duck session in
2010. A bipartisan bill passed by the Senate finance committee
to patch AMT for 2012 and 2013 was estimated to cost $132.2
The cost is one reason the AMT never gets patched
permanently. Republicans generally want to scrap the AMT
altogether; Obama's latest budget calls for adjusting it for
Further complicating the AMT picture is the chaos predicted
for the tax-filing season due to begin on Jan. 22, the first
working day after Obama's inauguration ceremony in Washington.
A letter from the tax-collecting IRS Commissioner Steve
Miller on potential agency problems related to the fiscal cliff
focuses almost exclusively on the AMT.
Failure to "patch" the AMT could lead to 60 million
taxpayers not being able to file tax returns or get a refund, in
addition to a software nightmare for the IRS computer systems.
Miller wrote lawmakers on Nov. 13 warning them of serious
repercussions for taxpayers, including 28 million with a "very
large unexpected tax liability," and delays in refunds for
"Consistent with past practice, I have instructed IRS staff
again this year to leave our core systems "as-is" with respect
to the AMT, and hold off on the substantial design and
engineering work" required otherwise, he wrote.
Miller last briefed the Senate Finance Committee about the
need for action late last month, according to a Senate source.
Representative Richard Neal, a senior Democrat on the Ways
and Means Committee who represents parts of Massachusetts, said
fixing the AMT was an absolute must.
"It has to be done. It reaches too many people if it's not,"
Neal said. "I think it is again being used as (a) bargaining
Republicans say they are holding out for a bigger deal.
"That is not going to solve the fiscal cliff," said
Republican Representative Pat Tiberi, who leads the revenue
sub-panel of the tax-writing House Ways and Means Committee.
"It is a very important part of the tax code but once you
start picking winners and losers in the tax code, how do you get
... the big deal done?"