WASHINGTON -- The House voted yesterday to spare millions of middle-income families next year from a complicated tax invented in the 1960s to capture rich tax evaders.
The force of inflation is pushing more middle-income households into the alternative minimum tax each year. About 3 million individuals and families paid it this year.
The House voted 333-89 to prevent the tax from ensnaring 9 million more taxpayers next year and imposing $17.8 billion in extra taxes.
"The expected growth in the individual alternative minimum tax is a major problem in the tax code that must be addressed," Treasury Secretary John Snow said.
The House bill slows the tax's spread into the middle class by keeping the amount of income exempt from the tax at this year's level, $40,250 for individuals and $58,000 for couples. Without action, the exemptions fall back next year to $33,750 for individuals and $45,000 for couples. The bill will not become law until it is passed by the Senate and signed by President Bush.
The less affluent taxpayers stuck with an alternative minimum tax bill often have a combination of factors that work to lower taxes but are ignored in the alternative minimum tax system. These include high state taxes, unreimbursed employee expenses, numerous children, or dependent parents.
The forms for this tax force taxpayers through a long series of calculations. Those who reach the end of the calculations and discover they owe the alternative minimum tax also find that the tax cuts passed during the Bush administration have disappeared.
Representative Phil English, Republican of Pennsylvania, said the House bill "will ensure that Americans get the benefits of the marriage penalty relief, child credit, and other tax relief we have provided during the past three years."
"If this bill is not enacted, it will amount to a tax increase on millions of Americans next year," he said.
The White House estimates that 9 million more taxpayers can expect to pay the alternative minimum tax next year unless lawmakers act. The Tax Policy Center calculated that as many as 12 million more individuals and families could get hit with the tax if lawmakers extend tax cuts scheduled to expire at the end of the year but do not address the alternative minimum tax.
Three tax cuts are to expire at the end of the year. They expanded the bottom tax bracket, reduced the marriage penalty, and increased the child tax credit.
The House rejected, 228 to 197, a Democratic fix to the alternative minimum tax that would have exempted every individual earning $125,000 or less and every couple earning $250,000 or less. They argued their solution would not only prevent millions from paying the tax, but also simplify one of the most complicated parts of the tax code.
Tax specialists say any long-term solution could prove costly. The Congressional Budget Office estimated that patching the alternative minimum could cost $376 billion over a decade, and as much as $549 billion if Congress makes all of the president's tax cuts permanent.