Washington The congressional struggle over how to protect millions of middle-class people from getting soaked by the alternative minimum tax this year entered its final stage Tuesday as the Senate rejected a House demand that the $50 billion in tax relief be paid for.
The Senate voted 48-46 for the House-passed bill, well short of the 60 needed to advance the measure to shield 21 million from an average AMT bill of $2,000. The measure would have covered the cost of the lost revenue by closing a loophole on offshore tax havens.
With that vote, the House was scheduled to vote today on a Senate-passed measure that fixes the AMT for a year but provides no offsets to pay for it.
Republicans and the White House insist that, because the AMT was never meant to affect millions of people, there is no need to raise taxes to pay for legislation to keep it from growing.
Senate Republicans used their filibuster powers to block the original House bill and President Bush threatened to veto any bill that included a tax increase.
The consequences of the congressional dispute could be felt by millions. The Internal Revenue Service has said that it will take seven weeks from the time the bill is signed into law to reprogram and test forms, going well past the planned mid-January start of the 2008 filing season.
The IRS said Tuesday that it has yet to decide whether certain delays in processing returns and sending out refunds will affect just AMT taxpayers or all taxpayers.
The AMT was created in 1969 to make sure that a small group of very rich people did not totally avoid paying taxes. But the tax, which applies more stringent rules for using deductions in calculating tax obligations, was never adjusted for inflation, and every year more middle- and upper-middle-level income people are hit by the tax.
Congress has responded by passing annual fixes, or patches, to keep the AMT from affecting more people. Without a fix, taxpayers subject to the tax could grow from 4 million in 2006 to 25 million this year.