WASHINGTON - The Senate could not agree on a plan yesterday for blocking an unpopular tax that could affect millions of taxpayers and already is causing disruptions in preparations for the upcoming tax filing season.
Senate Democratic and Republican leaders, while agreeing that Congress must act immediately to stop the alternative minimum tax from hitting some 25 million taxpayers in 2007, up from 4 million in 2006, mutually rejected plans from the other side on how to proceed.
"We all know this is a pernicious tax, a stealth tax," said Senate Finance Committee chairman Max Baucus, a Montana Democrat. "Each day we dally here" costs the government more money and "means a lot more frustration for taxpayers."
The AMT was created in 1969 to prevent a very small number of wealthy people from avoiding all tax payments. But it was never indexed for inflation, and every year more middle-income families are subject to the tax.
Congress in recent years has legislated annual fixes to keep the AMT reach from expanding, but this year the Democratic-controlled Congress and the White House have locked horns over whether the fix should be paid for with tax increases in other areas.
The House last month passed a bill that included $50 billion in new tax revenue to pay for the AMT fix and another $30 billion to pay for extending popular tax credits in areas such as research and development and education. President Bush said he would veto any bill that included a tax increase.
The Internal Revenue Service says that if AMT changes become law it will take about seven weeks to reprogram and test tax forms, and that IRS processing of tax returns, set to begin in mid-January, could be postponed. That could delay refunds for millions of taxpayers who file early.
Senate majority leader Harry Reid, a Nevada Democrat, proposed holding three votes - one on the House bill that has no chance of overcoming a GOP filibuster, one on a bill to repeal the AMT entirely, and one on a proposal by Baucus and Senator Charles Grassley, Republican of Iowa, that would provide ways of paying for extending the tax credits but not the AMT.
Repealing the AMT entirely, Reid said, "is sort of a difficult vote, because it would cost $1 trillion" to the government over the coming years.
Reid moved to hold a vote, probably tomorrow, on cutting off debate and proceeding to the House bill.