Bill would widen effect of AMT

WASHINGTON — The House’s top tax writer introduced a bill Thursday that would allow the alternative minimum tax to hit millions more taxpayers next year.

House Ways and Means Committee Chairman Bill Thomas opted to use tax cuts allotted in the GOP’s budget to extend tax cuts for capital gains and dividends for two years instead of holding back the alternative minimum tax.

Thomas, R-Calif., said last week that preventing the alternative minimum tax, or AMT, from spreading deeper into the middle class next year could drain the energy from efforts to overhaul the nation’s tax laws.

“Might it not help the momentum on tax reform if a few more people fully understood the impacts of AMT?” he said.

Thomas also said he did not have enough room under a $70 billion cap dictated by the budget to address the alternative minimum tax as well as capital gains and dividends.

The alternative minimum tax aims to prevent wealthy individuals from avoiding all taxation. The annual effects of inflation have brought it closer to less wealthy taxpayers each year. Those with several children and those who live in states with high income and property taxes are more likely to feel its pinch.

Lawmakers routinely enact temporary patches to restrain it. More than 20 million taxpayers can expect to pay the alternative minimum tax next year without that temporary fix.

Thomas did propose extending a provision that ensures taxpayers don’t lose some of their personal credits because of the alternative minimum tax, including the adoption credit and the child credit.

His bill would extend several tax cuts through 2010 — the 15 percent maximum tax rate for capital gains and dividends, equipment write-offs for small businesses and a saver’s credit for lower income taxpayers.

Many other tax breaks would be continued for another year, including a business research and development credit, a state and local sales tax deduction and a tuition deduction.

The House Ways and Means Committee plans to debate the legislation next week. The Senate’s tax-writing panel started advancing its own version of the tax cuts Thursday but postponed debate after failing to agree on its size and scope.

They lacked the pivotal support of Sen. Olympia Snowe, a moderate Republican from Maine, who said she’d like to see senators concentrate on matters that must be done this year, like tax cuts that expire in 2006.

“We’re in a different economic environment,” she said. “We’ve had three back-to-back hurricanes.”

The list of tax cuts due to expire this year does not include reduced rates on capital gains and dividends — a top priority for other Republicans on the committee.

“If I move one way, I lose a couple votes. If I move another way, I lose a couple votes,” said Senate Finance Committee Chairman Charles Grassley, R-Iowa.

The 15 percent tax rate on investment income runs out at the end of 2008, but many Republicans want to act this year and push that date ahead to 2010, as included in the House bill.

Snowe isn’t the only moderate Republican to voice concern about passing tax cuts this year. Sen. George Voinovich of Ohio, another Republican moderate, said he will vote against tax cuts because the government is accumulating too much debt and the economy does not need stimulation through tax reductions right now.