WASHINGTON - The Senate voted yesterday to shield about 20 million middle-class taxpayers from an unexpected tax hike this year, bringing Congress a step closer to ending a debate that has dragged on so long it threatens to delay refunds next year.
But the deal worked out between party leaders to prevent the alternative minimum tax, or AMT, from snaring more Americans does not comply with the budget guidelines Democrats enacted this year to cut the national debt.
It now faces an uncertain fate in the House, where Democrats have insisted that the $50 billion lost by not collecting the AMT for these filers be offset with new revenue.
The House passed an AMT plan in November that balances tax relief with additional taxes on wealthy investors.
The fix approved in the Senate includes no offset, reflecting unyielding Republican resistance to any new taxes to pay for tax relief.
The compromise passed the Senate 88 to 5, with the only dissenting votes coming from Democrats. All area senators except Delaware Democrat Tom Carper voted for it. Joseph R. Biden Jr. (D., Del.) missed the vote.
Unblocked, the tax increase could average $2,000 for millions of taxpayers.
"This is our best choice," Senate Finance Committee Chairman Max Baucus (D., Mont.) said.
In a statement, President Bush praised the Senate's action and urged the House "to swiftly pass this bill."
The center of the legislative action now shifts to the other side of the Capitol, where Democratic leaders have indicated they will seek other ways to pay for the AMT fix.
House Ways and Means Committee Chairman Charles B. Rangel (D., N.Y.) said he was interested making up lost revenue by placing new restrictions on the ability of hedge-fund managers to shield income off-shore.
Congress created the alternative minimum tax in 1969 to guarantee that the nation's richest households pay at least some tax. But because the provision - which requires some taxpayers to calculate their tax bill with an alternative formula - was not indexed for inflation, it threatens to pinch a growing number of Americans.
In the past, Congress has made repeated short-term fixes to avoid ensnaring middle-income taxpayers. About four million taxpayers paid the AMT last year.
When they assumed the majority in January, Democrats pledged that they would be better fiscal stewards than their Republican predecessors, who presided over years of budget deficits and a rapidly expanding national debt that now tops $9 trillion.
Democrats adopted pay-as-you-go rules that require lawmakers to offset increased spending or tax cuts by finding revenue elsewhere.
Faced with a $50 billion hole if they shielded millions from the AMT, House Democrats looked to some of the wealthiest taxpayers.
They proposed raising the tax rate on some investment-fund managers and partners in private equity companies, many of whom make millions of dollars but pay only a 15 percent tax rate on much of their income, which they classify as capital gains. If they were subject to the standard income tax, they would pay a 35 percent rate like other high-income Americans.
But Republicans argued there was no need to make up the lost revenue because the AMT was never intended to hit middle-income taxpayers.
With Democrats holding a one-vote majority, Republicans were able to use Senate rules to block consideration of the House AMT bill.
sexual orientation or gender identity.
federal law, hate crimes include acts of violence against individuals on the basis of race, religion, color or national origin.
The proposed bill
would have extended the category to include sexual orientation, gender, gender identity or disability. It also would have allowed federal officials to join hate-crime probes.