Senate leaders in both parties have agreed on patching the alternative minimum tax for another year, passing a set of clean energy tax incentives and extending several expiring tax cuts for businesses and families.

The bipartisan agreement, announced by leaders of the Senate Finance Committee, includes $17 billion worth of tax incentives for clean energy sources. It will be paid for in part by freezing the tax deduction for the domestic manufacturing activities of American oil and gas companies and tightening the rules by which oil and gas companies pay taxes on income earned overseas.

The AMT patch would protect approximately 20 million taxpayers from higher taxes at a cost of $64 billion. Senate Finance Committee leaders do not expect the cost of the AMT "patch" to be offset.

Extensions of expiring family and business tax cuts include tax relief for victims of natural disasters and an expansion of the child tax credit. It also includes the reearch and development tax credit, a teacher expense deduction to compensate teachers who lay out money from their own pockets for school supplies, and a tuition deduction to help families cope with rising college costs. The extensions will be partially offset by keeping hedge fund managers from using offshore corporations to defer taxes on compensation for investment services.

"This legislation will be a huge shot in the arm to the economy, and the timing couldn't be better," said committee chairman Max Baucus (pictured), D-Mont., in a statement.

Meanwhile, the House Ways and Means Committee has introduced the Energy Tax Incentives Act of 2008, which includes approximately $18 billion of tax incentives for investment in renewable energy, carbon capture and sequestration demonstration projects. It too would be largely paid for by denial of Section 199 benefits for major oil companies and "clarification" of foreign oil and gas extraction income.

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