The House last Wednesday approved a bill that would save millions of families from the Alternative Minimum Tax (AMT), but prospects in the Senate are not promising.
The House voted 233-189 to stop the AMT from spreading to more middle-class taxpayers next April while raising taxes on hedge fund managers and oil companies to raise the estimated $61.5 billion in lost revenue.
The Senate did not support a similar plan to raise the money that was proposed in December. The Washington Post reported Senate Finance Committee Chairman Max Baucus (D-MT) as saying that little has changed in the Senate in the past six months, so "why go through the motions?"
The White House also opposes the House measure. "The administration does not believe that the appropriate way to protect the 26 million Americans from higher 2008 AMT liability - including 22 million that would be newly exposed to the AMT - is to impose a tax increase on other taxpayers," the White House said this week in a veto threat issued against the bill.
House Ways and Means Chairman Charles Rangel, (D-NY) noted, "It's going to be very interesting to see how the other side explains why we don't have to pay for this."
Managers of private equity and hedge funds are now generally taxed at the 15 percent capital gains rates on the profits they share. High-income individuals normally pay instead 35 percent. The bill would tax most of the profit-sharing income of the funds at 35 percent.
Rangel said fund managers should not benefit from the lower 15 percent capital gains rate if their income comes from their investors. "If indeed they don't put their own money in it, they should be taxed at 35 percent," he said.
Ways and Means ranking member Jim McCrery, (R-LA) said, “Congress will eventually pass an AMT patch without tax increases as was done last year. I look forward to the Senate removing these ill-advised tax increases and helping us pass a clean AMT patch,” Investment News reported.
Without action this year, affected taxpayers on average would pay $2,400 more in taxes, CongressDaily reported. The AMT was established in 1969 to ensure wealthy families could not dodge tax obligations, but because it was not indexed for inflation, it continually ensnares more middle-class taxpayers.