CHN: AMT Passes – Child Tax Credit Left Behind

Beginning in 2001, Congress has annually passed one-year Alternative Minimum Tax (AMT) ‘patches’ to prevent certain taxpayers from paying more in taxes under the AMT than they would in the regular income tax system.   At the beginning of the year Congress knew it would pass an AMT patch.  The outstanding question was whether the legislation would adhere to rules adopted by Congress this year which require new tax cuts be paid for by cutting entitlement spending or enacting new taxes.
Without the patch, an additional 23 million taxpayers would be subject to the AMT when they pay their 2007 taxes next year, up from 4 million this year.  Although it is often characterized as a middle-income tax relief, according to a Citizen’s For Tax Justice analysis, 91 percent of the benefits from an AMT patch go to taxpayers making $84,000 to $455,000 a year.  The average benefit is $2100.  Click here for more details: Citizens for Tax Justice)

House leadership, in particular Ways and Means Committee Chairman Rangel (D-NY), were deeply committed to passing only those tax cuts that were offset by raising revenue from tax increases elsewhere in the code or cutting entitlement spending.  On November 9 and again on December 12, the House passed tax bills (H.R. 3996/H.R. 4351) that included an AMT patch and other provisions.  Common to both bills was a provision that would have allowed additional low-income taxpayers to qualify for the refundable child tax credit in 2008 by lowering the income threshold used to determine eligibility from $10,000 to $8,500.  Each of the bills was fully paid for predominately through changes in the corporate tax code.

It was clear early on that it would be difficult to garner the 60 votes in the Senate needed to offset the $50.6 billion cost of the AMT patch.  Further, the President promised to veto any tax bill that cut taxes and paid for it by raising taxes elsewhere.  On December 6, the Senate voted to amend H.R. 3996 to provide a one-year patch for the AMT without offsets and to drop other provisions including the child tax credit improvement.

On December 19, adjournment day, faced with a choice between not passing an AMT patch effecting 23 million taxpayers or supporting the Senate bill with no offsets and reneging on their commitment to pay for new tax cuts most House Democrats joined Republicans in supporting the Senate bill.  The final vote was 352-64 with all ‘no’ votes coming from both liberal and conservative Democrats frustrated by the capitulation to the President and Republicans who refused to pay for the $50.6 billion cost instead adding it to exploding national debt.

tax policy