Democratic Ways & Means Approves Revenue Neutral AMT “Patch”

November 2, 2007

The move towards patching AMT for one more year began yesterday on Capitol Hill as the Ways and Means Committee approved a one-year patch that also included tax increases elsewhere, so as to comply with House PAYGO rules. Details from the Los Angeles Times:

In a sign of changing priorities, the tax-writing panel of the U.S. House on Thursday voted to hike taxes paid by managers of many investment firms, as part of a broader tax-relief plan for millions of households who would owe extra money this year under the alternative minimum tax.

The action by the House Ways and Means Committee ignited a struggle that will be played out in the coming days, as members battle over plans to prevent the AMT from hitting 23 million households this year.

More broadly, the debate Thursday was a preview of conflicts over economic policy that will be heard in the presidential campaign and after next year’s election.

The measure could be considered on the House floor next week and then move on to the Senate, where leaders have expressed opposition to the proposed tax increases.

While most lawmakers dislike the AMT, they disagree fiercely over whether to impose new taxes to pay for the $50 billion in relief. The House panel favored some new taxes, on a party-line vote in which Democrats prevailed over Republicans 22-13.

This issue of investment firms’ income should not be addressed solely in the context of AMT. While Democrats are trying to hold it up as bait for Republicans to support AMT relief, it’s eventually just a question of sound income tax policy that is separate from AMT.

On the other hand, Republicans need to address this question head-on and make their case for why “carried interest” tax treatment should not be changed, rather than merely call it a “tax increase.”

AMT is going to be patched regardless of whether a pay-for is approved. While the politics here have placed the carried interest issue versus AMT patch, the two are totally separate issues and each should be addressed on its own merit. If it turns out that AMT should be patched and that carried interest should be subject to higher taxes, then having one pay for the other is fine. But those questions should be viewed as independent of one another. If AMT should be patched while carried interest should stay the same, then carried interest shouldn’t still be used for convenience.


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