Issue of the week: Congress plays chicken with the AMT

It’s a wintertime ritual in Washington, said Gail Russell Chaddock in The Christian Science Monitor. No, not the lighting of the White House Christmas tree. Every year, before Congress goes on its holiday break, it votes on a temporary fix of the Alternative Minimum Tax. That levy was originally imposed in 1969 to ensure that the wealthiest Americans could no longer escape paying income tax. But because the AMT has not been indexed for inflation, it now covers millions of taxpayers. The fix, or “patch,” is late this year, “because it’s caught up in a high-stakes battle” over whether the $50 billion that’s needed to pay for the yearly reprieve should be offset by tax increases. The Senate has already overwhelmingly passed legislation without the tax increases. But a vocal minority of Democrats in the House is trying to block any bill that doesn’t include offsets. Without the legislation, the AMT this year could ensnare some 22 million taxpayers, whose tax bills would jump an average $2,000. Millions more would see their tax refunds delayed, because the IRS must wait until Congress acts before programming its computers and processing returns.

This standoff didn’t need to happen, said USA Today in an editorial. “There’s an easy and equitable way to help offset the cost of this temporary patch.” Right now, the riches of managers at private-equity firms are taxed at the 15 percent capital gains rate. If those earnings were taxed as ordinary income, most of the $50 billion shortfall would be covered. But lobbyists for the private-equity industry have killed that idea. Now it appears that House Democrats “will buckle” on the “pay as you go” principle and approve an AMT patch with no funding to pay for it. “That’s your government at work.”

“Pay as you go” was always a sham anyway, said The Wall Street Journal. Democrats announced their commitment to “paygo,” as it’s called, as soon as they recaptured Congress in 2006. Ever since, they “have been using gimmick after gimmick to evade it.” The pending farm bill, for example, contains $5 billion to $10 billion in phony savings achieved by shifting subsidy payments from one year to another. “If a Fortune 500 CEO did that sort of thing, he’d be indicted.” The AMT showdown makes clear that Democrats liked “paygo” only because it gave them cover to raise taxes. Now they’ll have to abandon the cover or face the wrath of millions of taxpayers. That’s as it should be. “With the economy in a slowdown, the last thing anyone needs now is a tax hike.”

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The Democrats’ surrender on the AMT may cost them next November, said Kevin Hassett in Bloomberg.com. It will be just the latest legislative defeat in “what has become easily the most disastrous legislative year for a majority party in memory.” The Democrats have failed to make President Bush withdraw the troops from Iraq, they have proved themselves “addicted” to pork-barrel spending, and now their divisive tactics have produced a humiliating defeat on the AMT. “The really bad news for Democrats is that voters have noticed.”