U.S. HOUSE Temporary tax fix passes

The Senate still has to act on the legislation.
KNIGHT RIDDER NEWSPAPERS
WASHINGTON -- The House of Representatives overwhelmingly passed a temporary fix to the tax code Wednesday that could save money for millions of upper-middle-class taxpayers.
The measure, which passed 333 to 89 with broad bipartisan support, would modify the alternative minimum tax. The AMT was designed in 1969 to prevent wealthy people from avoiding taxes, but it's not adjusted for inflation and now ensnares millions of affluent taxpayers.
"If the AMT bill is not signed into law this year, 11 million taxpayers will be hit with an average tax increase of $1,520," said House Majority Leader Tom DeLay, R-Texas.
Raises income levels
The legislation would raise the income levels exempt from the AMT for single filers to $40,900 from $40,250, and for joint filers to $58,950 from $58,000. It would extend the tax relief for only one year, until 2005, and would adjust the rates for inflation.
The bill would cost the U.S. Treasury $17.8 billion, adding to the record federal budget deficit, according to the Congressional Budget Office, a nonpartisan technical arm of Congress.
The Senate hasn't acted on the legislation, but the White House issued a statement Wednesday urging Congress to pass it this year. Senate Majority Leader Bill Frist, R-Tenn., is expected to set a date to consider the bill, given its broad support this election year.
In 1970, only 19,000 taxpayers paid the AMT, but currently 2.6 million people do, according to the Internal Revenue Service. Up to 30 million may be subject to the AMT by 2010 if it's not changed, the Congressional Budget Office estimated last month.
Most vulnerable
The AMT affects taxpayers who earn more than $75,000 and take multiple deductions. The people most vulnerable to the AMT are "taxpayers with several children, interest deductions from second mortgages, capital gains, high state and local taxes, and incentive stock options," according to SmartMoney.com. Small-business owners and taxpayers with rental properties or partnership interests are also targeted.
"This is where the middle class gets soaked," says SmartMoney.com.
When the taxpayers take a high number of deductions, they must recalculate their taxes under AMT formulas and compare their tax liability to what it would be under ordinary tax schedules. This means they essentially must calculate their taxes twice, then pay the higher fee.
Many politicians and tax experts want to junk this convoluted system and say the Republican-crafted bill heads in the right direction.
"This is a small step and this is a meaningful step" to help families "who are struggling to educate their kids, buy their groceries and keep their mortgages," said Rep. E. Clay Shaw Jr., R-Fla., who sits on the House Ways and Means Committee, which writes tax law.
Exemptions raised
As part of the broad 2001 and 2003 tax-cut packages, Congress raised AMT exemptions from $45,000 to $58,000 for married couples, and from $33,750 to $40,250 for individuals. But because those tax laws also reduced income-tax rates, more upper-middle-class families fell into AMT brackets, according to the Congressional Research Service, a nonpartisan analytical arm of Congress.
Rep. Jim McDermott, D-Wash., who also sits on the Ways and Means Committee, charged that the new bill is a temporary fix to a long-term problem and said Republicans are unwilling to tell Americans during an election year how costly a permanent solution would be.
The Congressional Budget Office estimates that permanently fixing the AMT would cost the Treasury heavily. Indexing the tax for inflation would cost $370 billion from 2005 to 2014. Eliminating the AMT would cost about $600 billion over 10 years, the budget office said.