House approves alternative minimum tax fix

WASHINGTON -- The House took steps Wednesday to rein in the alternative minimum tax, carrying out what has become an annual ritual to protect millions of people from getting squeezed by the unwanted tax.

The House voted 393-30 to increase the AMT exemption in 2008, saving more than 20 million taxpayers from getting hit with a tax increase averaging about $2,000.

The House separately approved, 419-4, some $8 billion worth of tax relief for disaster victims.

The votes came a day after the Senate similarly adjusted the AMT as part of a major tax package that included disaster relief, extension of business and individual tax breaks that have expired or will soon expire, and tax incentives for renewable energy investment.

The House is preparing a third bill to address the energy and tax break extension issues. Both the disaster and energy bills differ from the Senate measure, and it will be a challenge for lawmakers to come up with a compromise in the last few days of this session of Congress.

The AMT was created in 1969 to catch a very small number of rich tax dodgers, but it affects more people every year because the tax is not indexed for inflation. Without congressional action this year, those hit by the AMT could grow from around 4 million to about 26 million, the White House said in a statement Wednesday urging Congress to move quickly.

House Ways and Means Committee member Rep. Richard Neal, D-Mass., said 84% of those exposed to the tax have annual incomes of less than $200,000.

The White House applauded the House for not imposing new taxes to offset the cost of the one-year fix, estimated at about $64 billion over 10 years.

Last year Congress didn't clear the AMT bill until late December as a result of a dispute between House Democrats, who wanted the tax relief paid for, and Senate Republicans who insisted there be no new taxes to match the tax relief. In the end, opponents of new taxes prevailed.

The issue of paying for tax relief clouds the other aspects of the tax package. The Senate bill pays for the $17 billion in renewable energy tax credits by limiting deductions available to the oil and natural gas industry. But the Senate only pays for about $25 billion of the $68 billion in business and individual tax breaks. The most expensive is the $19 billion cost in the Senate bill of renewing the research and development tax credit for two years.