WASHINGTON -- Habitual congressional gridlock usually has no impact on the lives of ordinary Americans. But what happened on the Senate floor last Friday just before lawmakers recessed for their Thanksgiving break will delay tax refunds next year for some 50 million taxpayers who count on them.
The underlying reason is a 38-year-old congressional tax blunder that never has been corrected. In 1969, Congress passed the alternative minimum tax (AMT) to collect from 155 tax-avoiding millionaires. But because the scheme was not indexed for inflation, this year alone it would hit 23 million extra people with taxes higher than intended. AMT will be "patched" to provide relief as it is in every Congress, but not in time this year. Refunds totaling over $75 billion will arrive many weeks late not only for taxpayers in the $100,000-to-$200,000 bracket who are unintentionally affected by AMT, but also lower-income persons because the IRS refund procedure will be disrupted by the delay.
Senate Majority Leader Harry Reid's eleventh hour effort Friday collapsed when he refused to open the proceedings to votes on Republican tax-cutting proposals. At the heart of this deadlock is a debate between Democrats and Republicans over whether the level of federal taxation should be controlled. For once, the debate comes home to ordinary taxpayers in delayed refund checks.
The AMT problem did not take Congress by surprise. The administration for months had been calling for another AMT "patch" to keep the monster that Congress built from devouring more taxpayers. But Democratic Rep. Charles Rangel, chairman of the tax-writing House Ways and Means Committee, said he instead would attempt "the mother of all tax reforms": total repeal of AMT, with lost revenue paid for by massive taxing of the rich -- a trillion-dollar redistribution of wealth over the next decade.
Rangel's "mother" was going nowhere, so Congress last month belatedly turned to passing a patch. The Blue Dogs, self-styled Democratic fiscal conservatives, insisted on offsets -- $26 billion in tax increases -- to cover lost AMT revenue. Rangel's new bill (called "little mother" by Republicans) hit unpopular targets: private equity accounts, hedge funds and investment partnerships. It passed the House Nov. 9 on a party-line vote.
Everybody knew "little mother" was pure posturing. There was no chance for the necessary 60-vote super Senate majority. Indeed, Senate Democratic leaders did not want a tax increase offset for the patch. The bill's final version that would reach President Bush's desk would contain no tax increase. Majority Leader Reid said he would not pass a bill until December when Congress returned from its Thanksgiving break.
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