Rangel plans AMT measure, but offsets are unidentified

House Ways and Means Committee Chairman Charles Rangel (D-N.Y.) will introduce a one-year patch to the Alternative Minimum Tax (AMT) next week, as well as legislation overhauling the tax code, calling the first measure a “stopgap” before the AMT can be repealed for good.

{mosads}The two measures could be introduced together, although Rangel said he would wait to push the larger overhaul, which will include corporate tax relief in addition to AMT repeal, until 2008, barring a sudden shift in the political winds. That move effectively delays the plan he announced last month to cut taxes on 90 million households. Both bills will be revenue-neutral to comply with Democrats’ newly adopted pay-as-you-go budget rules when they are introduced.

“The stopgap [AMT patch] will have to come first. The larger [tax] bill will pay for itself,” Rangel told reporters on Wednesday.

As for the question keeping many on the Hill and K Street awake at night — how he plans to pay for the one-year patch to the mushrooming AMT — Rangel stayed mum.

“I don’t think it would make a lot of sense for me to be talking about these things,” he said. “It’s going to be politically painful, as usual.”

With about 24 million taxpayers about to be hit by the AMT this year, Congress is under pressure to pass at least a one-year patch within the next few weeks. Shielding those taxpayers from the AMT for one year will cost the Treasury an estimated $50 billion, while a two-year patch would cost an additional $65 billion. Rangel said the measure he plans to unveil next week would cost $80 billion, because it will include extensions of popular tax breaks.

Many observers expect Democrats to waive the budget rules to pay for the legislation, preventing a politically popular vote from becoming mired in difficult offsets. Asked whether there was any “low-hanging fruit” available to use to pay for the one-year patch, Rangel quipped: “I think we’ve eaten all of that.”

Rangel declined to speculate on how he would address a looming push to waive pay-go rules on the one-year AMT fix, reiterating his commitment to finding workable offsets.

“If the Dalai Lama comes in here and tells me he wants to waive pay-go, I’d give it serious thought,” the New Yorker said with a wink.

Rangel said the larger tax overhaul, which he has called “the mother of all reforms,” would include tax increases on the private-equity and hedge-fund industries. He brushed aside suggestions that Democrats would be better served by waiting to push the massive tax reform until 2009, when a Democrat is favored to occupy the White House.

“On many things, a lot of people believe we should do nothing and just wait for Hillary to become president,” Rangel said. “I really, quite frankly, don’t think in terms of what we’ll be doing in 2009.” At the age of 77, he added, he wants to tackle thorny problems head on.

Meanwhile, a Wednesday meeting of Senate Finance Committee members yielded no final decision on how the upper chamber will approach the AMT.

However, Senate Republicans stand ready to oppose any hint of a tax hike that could be floated to pay for an AMT patch or repeal. Several Republicans on Finance, led by ranking member Chuck Grassley (Iowa), are pushing to fix the tax fully by waiving pay-as-you-go rules, although White House projections of a balanced budget in the next five years rely on keeping the AMT alive.

“They’re looking, obviously, to find the offsets in pay-go rules to decrease spending or raise other taxes,” Sen. Gordon Smith (R-Ore.), a Finance member, said of Democrats. “But the problem is, those taxes aren’t productive to raise.”

Yet Senate GOP leaders, conscious of the party’s need to re-brand itself with fiscal conservatism, may not readily embrace a vote to waive budget rules while handing Democrats a victory on the AMT. Speaking to reporters Wednesday, Minority Leader Mitch McConnell (R-Ky.) declined to discuss the level of support in his conference for taking the $80 billion-plus AMT hit without offsets.

“Exactly how [an AMT fix] is done is yet to be determined, but we think it needs to be done,” McConnell said.

If Grassley prevails upon Finance panel Chairman Max Baucus (D-Mont.) to exempt the AMT from pay-go rules, the tension that flared this fall between Finance and Ways and Means members over the children’s health insurance bill could reemerge stronger than ever. Rangel appeared resigned to another skirmish with the Senate, where the 60-vote margin needed to break a filibuster is on everyone’s mind.“I have to deal with these people on the other side,” Rangel said. “They really think they’re in charge of everything.”

Senate Majority Leader Harry Reid (D-Nev.), however, declined to show his hand on the scope of his caucus’s preferred AMT fix. “I’m not going to certainly put my stamp of approval on anything or stamp of disapproval at this time,” Reid told reporters this week.