Lawmakers pushing for limit to the alternative minimum tax

Published 11:51 pm Saturday, January 10, 2009

WASHINGTON — Some influential Democrats are pressing to make an expensive addition to President-elect Barack Obama’s economic stimulus package: an $80 billion provision to protect millions of middle-class families from the alternative minimum tax.

Advocates say limiting the tax, known as the AMT, would avert a substantial tax hike for as many as 24 million taxpayers early next year. But opponents say cutting a tax that most people have never paid would do little to stimulate economic activity and would dilute the impact of an initiative aimed at lifting the nation out of the recession.

“There’s a natural tendency on the part of some longtime, senior congressmen to put as much dirty laundry as possible in this stimulus bill,” said Rep. Jim Cooper, D-Tenn., a fiscal conservative who is urging Democrats to keep the package tightly focused on creating jobs and new investment. “I’m not sure what (the AMT) would stimulate, other than our re-election.”

A temporary limit on the AMT is the most expensive proposal among a flood of requests for additions to the massive stimulus package, which some Democrats now say could grow as large as $1 trillion. Since lawmakers returned to Washington last week, Obama’s team has been besieged with proposals, ranging from additional tax credits for renewable energy to changes in the bankruptcy code to help homeowners at risk of foreclosure.

Combined with concerns from some Democrats about Obama’s plan to cut taxes for businesses and working families by more than $300 billion, the rush to include favored programs is slowing progress on a package that many economists say is urgently needed to bolster the rapidly weakening economy. Lawmakers who once aimed to approve the stimulus measure in time for Obama’s Jan. 20 inauguration now say they are unlikely to vote on it until mid-February.

The AMT is a parallel tax structure created in 1969 to nab 155 super-rich tax filers who were using loopholes and deductions to wipe out their tax bills. Because it was not indexed for inflation, it has grown to ensnare millions of people for whom it was never intended.

For years, Congress has blunted its impact by enacting temporary inflation adjustments. The most recent “patch” expired in December.