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Senate OKs bill blocking tax increase for millions

WASHINGTON – The Senate voted Thursday to shield about 20 million middle-class taxpayers from an unexpected tax hike this year, bringing Congress a step closer to ending a debate that has dragged on so long it threatens to delay refunds next year.

But the deal worked out between party leaders to prevent the alternative minimum tax from snaring more Americans does not comply with the budgetary guidelines Democrats enacted this year to rein in the national debt.

And it now faces an uncertain fate in the House, where Democrats have insisted that the $50 billion lost by not collecting the AMT for these filers be offset with new revenue. The House passed an AMT plan in November that balances tax relief with additional taxes on wealthy investors.

The fix approved Thursday in the Senate included no offset, reflecting unyielding Republican resistance to any new taxes to pay for tax relief.

The compromise passed the Senate 88 to 5, with the only dissenting votes coming from Democrats.

“This is our best choice,” Senate Finance Committee Chairman Max Baucus, D-Mont., said on the Senate floor Thursday night. “We need to act.”

In a statement, President Bush praised the Senate’s action and urged the House “to swiftly pass this bill.”

The center of the legislative action now shifts to the other side of the Capitol, where Democratic leaders have indicated they will seek other ways to pay for the AMT fix.

House Ways and Means Committee Chairman Charles Rangel, D-N.Y., said Thursday he is interested making up lost revenue by placing new restrictions on the ability of hedge-fund managers to shield income off-shore.

Thursday’s vote ended weeks of feuding between Democrats and Republicans in the Senate over an arcane tax provision that most taxpayers never see.

Congress created the alternative minimum tax in 1969 to guarantee that the nation’s richest households pay at least some tax. But because the provision – which requires some taxpayers to calculate their tax bill with an alternative formula – was not indexed for inflation, it has threatened to pinch a growing number of Americans.

In the past, Congress has made repeated short-term fixes to avoid ensnaring middle-income taxpayers. An estimated 4 million taxpayers paid the AMT last year.