Congress is currently at work on legislation that includes, among other things, a two-year extension of dividend and capital gains tax cuts that were scheduled to expire at the end of 2008, and a one-year extension of alternative minimum tax relief.Without this relief, the AMT would cause higher taxes starting in 2006 for an estimated 16 million additional taxpayers to whom it was not intended to apply. Perhaps not surprisingly, House Republicans have sought to finalize the dividend and capital gains extension first, even though the AMT problem is much more immediate.
Democrats have criticized the Republicans' priorities, but, accepting that those are the priorities, the political moves make a lot of sense. Without relief, the AMT would affect a large number of typical families - some lower-income, but, more commonly, upper-middle-class two-earner families with children. These are not the extremely wealthy, and it would hit them even though they have not taken inordinate advantage of any tax-saving opportunities. No matter how bad the budget looks after the other tax cuts, and no matter what the cost, presumably the one year of AMT relief would be passed sooner or later.
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