The Senate yesterday narrowly passed a $3.1 trillion budget resolution, which includes a provision that would relieve millions of Americans from paying the alternative minimum tax for another year.
The bill, which represents a compromise reached via a conference between the House and Senate, passed by a vote of 48 to 45. The House is expected to vote on it sometime today.
In addition to AMT relief, the measure would provide a $1,000 per child tax credit, removal of the estate tax for all but a "minute few" of the richest families, an extension of the state and local sales tax deduction, and a tax credit for so-called school construction bonds.
Currently, state and local governments can issue up to $400 million a year of qualified zone academy bonds, which are taxable tax-credit bonds used to finance repairs and renovations of existing school facilities in specific areas called empowerment zones or enterprise communities. The school construction bonds, which could be used for new facilities, would similarly offer a tax break in lieu of tax-exempt interest payments.
The AMT, which applies to interest earned on private-activity bonds and some governmental and 501(c)(3) bonds, is not indexed to inflation and, as a result, more and more taxpayers become subject to it each year.
Budget Committee chairman Kent Conrad, D-N.D., said the one-year "patch" to the AMT will protect "more than 20 million people in this country." While the bill does provide temporary relief from the AMT, it does so under the assumption that Congress will eventually raise taxes to pay the more than $50 billion it will cost to pay for the patch. No revenue-raising plans have been specified yet.
Last year, Senate Democrats attempted to pay for a one-year patch by requiring that hedge fund, private equity, and other investment managers who share in their investors' profits pay taxes on that income at ordinary tax rates, as opposed to the lower capital gains rate they currently pay, known as "carried interest." However, Republicans threatened a filibuster, derailing the plan and forcing Democrats to break their adherence to "pay-go" rules for the first time since taking the majority in Congress.
The resolution, which is nonbinding and will not be signed into law by the president, is meant to serve as a guide for committees and lawmakers by establishing the maximum amount that can be spent in categories, such as defense and health care.
During yesterday's debate, Senate Democrats claimed that the budget represented a departure from the costly fiscal policy of President Bush, marking a return to financial discipline and a stop to the growing deficit.
"This budget seeks to take the country in a different direction," Conrad said. "It will restore fiscal responsibility by balancing the books by 2012 and continuing that balance in 2013."
However, Republicans accused the opposing party of simply punting the unavoidable costs down the line to future years. Part of the Democrat's budgetary outlook is a boost in tax revenues of about $129 billion a year starting after 2010.
"Make no mistake about it, this is the biggest tax increase in the history of the world," said Budget Committee ranking minority member Sen. Judd Gregg, R-N.H. "This budget has buried in it a $1.2 trillion tax increase [that] will translate when it kicks in in 2011."
