Stimulus bill tax “fix” being debated

WASHINGTON – Barack Obama’s Democratic allies on Capitol Hill are trying to use the president-elect’s economic recovery bill to extend a tax cut for middle- to upper-income taxpayers despite concerns from his transition team that it won’t boost the economy.

Rep. Charles Rangel, D-N.Y., Congress’ top tax writer, says both House and Senate members feel strongly about using Obama’s stimulus package to make the annual fix to the alternative minimum tax to prevent more than 20 million additional tax filers from having to pay it.

Making that fix for one year alone will cost about $70 billion, a healthy chunk out of the approximately $300 billion that Obama has set aside for tax cuts in his emerging $850 billion stimulus plan.

The AMT “patch” is usually dealt with in the fall, but doing it now makes lawmakers’ jobs easier.

The AMT was designed in 1969 to make sure wealthy taxpayers pay at least some tax. But it was never indexed for inflation and therefore threatens to trap millions of people for whom it was never designed.

The Obama economic team has been resisting adding the AMT fix to the economic recovery bill, arguing privately that it won’t do much to help the economy.

It’s virtually certain to be addressed later if left alone now – and in any event, the effects wouldn’t be felt until next year’s tax-filing season.

Rangel, the Ways and Means Committee chairman, said other tax provisions would have to take a “haircut” to pay for dealing with the AMT. A $3,000 job- creation tax credit – which drew strong objections as unworkable – appears likely to be jettisoned from the Obama plan.

Also threatened is a pro-business provision proposed by Obama that would allow companies posting losses last year to get refunds for taxes paid as far back as five years earlier.

The House and Senate have often wrangled over how to pay for fixing the AMT – whether to use other tax revenues to cover the cost or to add the cost to the budget deficit.

One of the factors that seems to be driving House members’ desire to add the AMT patch to the economic recovery bill is to not have to follow through on promises to pay for it with painful tax hikes.