House Democrats are struggling to agree on a bill that would temporarily fix a tax-code glitch that could force 23 million middle- and upper-middle class Americans to pay thousands more in federal taxes this year.
The Senate has declared it will wait until at least December to vote on legislation that would block expansion of the alternative minimum tax and the Internal Revenue Service has warned the delay could result in later tax returns in 2008.
House Democrats on Wednesday were on the verge of postponing a vote scheduled for Friday that would fix the AMT.
Congress has voted for such a “patch” in previous years in order to prevent a tax meant to apply to the wealthiest Americans from ensnaring people with middle- and upper-middle class incomes because it was never indexed to inflation.
This year, the Democrats are considering a patch that would increase taxes on private-equity fund managers, treating much of their compensation as ordinary income (taxed at 35 percent) instead of capital gains (taxed at 15 percent). They would also be barred from moving assets offshore to defer paying taxes.
Democrats say the tax increase and offshore provision are needed so Congress can comply with new rules requiring it to raise enough revenue to cover increased expenditures.
But most Republicans and some moderate House Democrats oppose the tax increases, and that could force House Speaker Nancy Pelosi, D-Calif., to postpone the vote if there is not enough support to pass the bill.
Democratic aides conceded that the vote could be delayed, but blamed a busy legislative calendar.
Republicans said Democrats are suffering from push back from their own caucus who fear tax increases will cost them their seats.
“Ultimately, I believe there will be an AMT patch and I believe it won’t have a tax increase as part of it,” said House Minority Whip Roy Blunt, R-Mo.
In the Senate, Democrats and Republicans have been unable to reach a deal on how or whether to make up for revenue lost by suspending the AMT.
Majority Leader Harry Reid, D-Nev., said the Senate would not even consider taking up an AMT bill until Congress returns on Dec. 4 from a two-week Thanksgiving recess.
Acting IRS Commissioner Linda Stiff said earlier this week that the anticipated Jan. 14 start of the tax-filing season could be delayed by each day Congress waits to pass an AMT fix because the agency would need extra time to reprogram its computers to reflect the changed policy.
