Don't Mess With Taxes

Our long national AMT nightmare is over. Sorta. For one more year.

But down the road, we're going to pay a hefty price for the lack of political will when it comes to taxes.

Oh sure, there was lots of press release talk about tax relief for "America's working families." And politicians were going through contortions patting themselves on the back for coming through for John and Jane Average Taxpayer.

Little was said, however, about how hedge fund and private equity firm managers escaped tax increases that would have paid for the revenue that will be lost because of the AMT patch. And not a word was mentioned about all the high-powered lobbying on behalf of these not-so-average, i.e., wealthy, Americans.

I know, I'll get the "quit bashing the rich" e-mail. I'm not. Good for folks who've figured out how to make the most bucks. We all want to be there.

But they also seem to get off the tax hook a lot when it comes to making hard choices. And so our deficit grows. And that's not good for any of us in the long run. And it's because too many of those who "work" on Capitol Hill today will let future members of Congress -- and those of living well beyond the Beltway -- worry about that.

Pay go, pay went: To the House's credit, many of those lawmakers repeatedly tried to follow Congressional pay-go rules that call for any tax losses to be offset by tax income from other sources. But the Senate repeatedly resisted, stripping the pay proposals from the bill.

With time, not to mention patience, running out, the House gave in Wednesday and approved the unfunded measure that will bump up the income exempt from the alternative tax. For single taxpayers, the income exemption goes from $42,500 in 2006 to $44,350 in 2007 from; for married couples, it goes from $62,550 to $66,250. In effect, the bill will mean that most families earning less than $150,000 a year will not owe AMT; without the patch, those making $67,000 could have been subject to AMT.

The Center on Budget and Policy Priorities estimates that more than two-thirds of the $50 billion cost of this year's AMT patch is due to Dubya's 2001 and 2003 tax cuts. If those tax cuts had not been enacted, it is estimated that 10 million rather than 23 million taxpayers would have faced the AMT this year.

"While the president and his GOP allies in Congress may attempt to paint this as a victory or an example of Democrats backpedaling, this is an example of the tough choices that responsible leadership requires," said Ways and Means Chairman Charles Rangel in a statement following the House vote. "Only in the cynical world of Washington would a lame duck president and bitterly frustrated minority attempt to claim victory at the expense of future generations and our national security."

Rangel, D-N.Y., still hopes to permanently deal with the AMT next year. Good luck with that, Mr. Chairman. It's an election year. For many politicians, the AMT is more beneficial as a campaign tool than as an actual piece of tax policy.

Republicans, on the other hand, praised the AMT fix that avoided other tax increases. "At a time when many economists are worried about our economy going into a recession, now would be the wrong time for this Congress to endorse a tax increase," said Louisiana Rep. Jim McCrery, senior Republican on the Ways and Means Committee.

Gee. All those years we lived in the D.C. area and I thought it was the Potomac that ran through the nation's capital. Apparently, it's a branch of the ubiquitous Denial River.

Work now falls to IRS:  When I was in D.C. last week for the Taxpayer Advocacy Panel conference, we heard from several IRS officials who, while toeing the agency line about expected filing -- and refund -- delays, there was some hope that it might not be as long as previously announced (blogged here).

Since the exemption amounts weren't an issue, just the offset provisions, the IRS was able to do some preliminary work on the AMT-affected tax forms and calculations. Now it's a matter of plugging them into the IRS system and running the necessary tests to ensure there are no major snafus.

The IRS announced it will immediately begin the final reprogramming steps and within three days after the bill is signed into law, the dozen forms affected by the new AMT bill will be posted on IRS.gov.

"Our people will do everything they can to quickly update our systems for this major change and make this filing season as smooth as possible for everyone," said IRS Acting Commissioner Linda Stiff.

"The IRS is doing all it can to have a fully successful filing season," Treasury Secretary Henry Paulson said in a post-vote statement. "However, it is likely that there will be some delays, including delays of some refunds. The Treasury Department and the Internal Revenue Service will do everything possible to keep American taxpayers informed throughout the course of the upcoming filing season."

I know there will be some delay, but I'm hoping that the seven weeks mentioned during the height of the AMT debate was, in large part, a threat more than a promise.