Ditch the AMT Patch, For Now

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If the patch for the alternative minimum tax is going to be one of the hurdles holding up reconciliation of the House and Senate versions of the stimulus bill, let’s get rid of it.

The one-year patch, which will prevent the AMT from ensnaring another 20 million or so taxpayers, is estimated to cost $69.8 billion over the next 10 years, according to the Joint Committee on Taxation. However, the one-year patch is enacted practically every year, and the Senate only added it to the stimulus bill after influential Senate Finance Committee ranking member Charles Grassley, R-Iowa, introduced it as an amendment while the bill was in his committee.

Despite winning passage of the amendment, Grassley still joined most of his fellow Republicans in voting against the final version of the stimulus bill in the Senate. The bill nevertheless passed with help from three of his Republican colleagues, along with all of the Democrats and two independents. Now it has to be reconciled with the House version in a conference committee, which will have to contend with the differences between the bills (see Senate Approves Stimulus Package).

Both Democrats and Republicans fully expect the patch to be passed every year, although there was so much last-minute jockeying at the end of 2007 over how the patch was going to be paid for that it ended up delaying the IRS in shipping out several important forms last tax season. Luckily, the AMT patch for this tax season was included in the big financial bailout bill last fall, so the IRS had plenty of time to get all the forms ready. That means there was no particular reason to include the AMT patch in legislation so early this year.

Nobody wants another mad scramble at the end of the year, but there is obviously much more pressing business to attend to right now. The annual AMT patch is already getting to the point where it’s almost taken for granted, but few legislators are willing to pass a permanent fix because of the huge cost.

Senate Minority Leader Mitch McConnell, R-Ky., was asked at a press conference Monday about the proportion of tax cuts to spending in the stimulus bill. A reporter pointed out that the Senate version contains about 45 percent tax cuts and wondered how many more tax cuts were needed. McConnell replied that he didn’t count the AMT patch as a tax cut. “It’s a tax we’re never going to collect,” he said. “Every year we do an AMT fix, so simply making this decision not to levy a tax we’re never going to levy anyway, I don’t find terribly stimulative.”

He may not find it terribly stimulative, but it still accounts for nearly $70 billion worth of difference between the two bills, albeit over 10 years. Meanwhile, the differences between the House and Senate versions amount to about $19 billion, with the Senate version totaling about $838 billion, according to the Congressional Budget Office, and the House version about $819 billion.

To reconcile the two, the conference committee is going to be hard pressed to satisfy the demands for more cuts in spending on programs such as education, school construction, desperately needed aid to states, health information technology, and rural broadband service, the kinds of cuts demanded by the three Republican senators who worked out a compromise with Democrats and voted for the bill. Their support will be crucial in achieving passage of the bill when it comes back to the Senate.

On the other hand, President Obama made the case in a prime-time news conference for including exactly that kind of spending in the bill. Perhaps the best way to get the bill passed would be to table the AMT patch for now and try to get it passed later in the year in a tax extenders bill, giving the IRS enough time to get all of its forms ready. Some of the stimulus spending is also likely to get tabled for a while and moved into an appropriations bill, which might be more appropriate anyway.

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