The House Budget Committee yesterday was on the verge of approving a $1.014 trillion spending blue print for fiscal 2009, including a $70 billion provision to shield 30 million new taxpayers from having to pay the alternative minimum tax for the 2008 tax year and a tax credit for qualified school-construction bonds.
The AMT, which applies to interest earned on private-activity bonds and some governmental and 501(c)(3) bonds, is designed to target high-income households, which are eligible for so many tax breaks they pay little or no taxes. However, the AMT is not indexed to inflation so more taxpayers become subject to it each year. Congress late last year approved AMT relief for the 2007 tax year.
The committee's action came as the Senate Budget Committee began debating corresponding legislation that would authorize spending $1.010 trillion, which also included $70 billion for one year of AMT relief.
However, the House measure instructs the Ways and Means Committee, which oversees tax issues in the House, to offset the $70 billion in lost revenue between 2011 and 2013. The Senate legislation does not assume that the AMT relief will be offset.
The House bill also calls for the Ways and Means Committee to reduce federal spending by $750 million over the next five years through a "budget reconciliation" measure, which the committee would have to produce by Sept. 12. The reconciliation bill, which would include language calling for an offset of the AMT patch, could not be filibustered in the Senate under existing budget laws.
Last year Senate Republicans derailed attempts by Democrats to pass a one-year AMT bill that would be offset 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. Currently, they pay the lower capital gains rate on that revenue, which is known as "carried interest."
The House bill also would enact a tax credit for so-called qualified school construction bonds, a proposal pushed by Ways and Means chairman Charles Rangel, D-N.Y. Currently, state and local governments can issue up to $400 million a year in qualified zone academy bonds, which are taxable tax-credit bonds used to finance repairs and renovations of existing school facilities. Rangel's school construction bonds would similarly provide a tax break in lieu of tax-exempt interest payments, and could be used for new facilities.
