AMT relief

The annual congressional tussle over fixing the alternative minimum tax has begun.

The House struck the first blow Wednesday with a vote on another temporary fix that still avoids a permanent solution. It is the same approach Washington has taken year after year to extend relief to more than 20 million taxpayers who might otherwise find themselves paying thousands of dollars in federal taxes next year.

The reach of the AMT has grown far beyond its intent when Congress enacted the parallel tax in 1969 after 155 taxpayers earning more than $200,000 had avoided paying any income tax in 1967. The AMT requires taxpayers with deductibles such as property taxes and home-mortgage interest payments to calculate their taxes twice — with and without the deductions — and then pay the higher amount.

However, the income threshold has never been adjusted for inflation. As wages have risen, more taxpayers have been caught by the AMT. In 2006, 4.2 million filers paid the tax, compared to 20,000 in 1970. And without an extension of the AMT limits, the number could soar to between 25 million and 30 million, hitting middle-class families especially hard.

The Citizens for Tax Justice estimates that extending the limits that expire yearly will mean an average tax saving of about $2,300.

Yearly action to mitigate the reach of the AMT are necessary since Congress cannot agree on a permanent solution, mainly due to the billions of dollars in revenue it generates.

House pay-as-you-go rules require that tax cuts be offset through spending cuts or increased revenues. The bill before the House Wednesday would accommodate that by raising $61.5 billion in taxes aimed mainly at corporate and wealthy taxpayers.

However, President Bush and Senate Republicans object to tax increases.

Last year, Congress and the White House fought over an AMT patch right to the end of the year. It was late December before they could agree on a one-year freeze in the growth of the AMT, which delayed this year's tax filings and refunds while the IRS developed new tax forms.

A permanent resolution, such as indexing the income threshold to inflation, does not seem likely. However, Congress and the administration have to do better than last year and avoid the last confusion by enacting the fix well ahead of the year's end.