Parties to make campaign issue of AMT

If Congress acts to shield millions of Americans from the Alternative Minimum Tax (AMT) before lawmakers leave town for the winter break, don’t expect the matter to melt away with the spring thaw.

The failure to enact a one-year AMT patch sooner has already guaranteed the disruption of the 2008 tax filing season, and Republicans and Democrats are gearing up to blame each other for holding up as many as 38 million taxpayer returns and $87 billion in refunds.

{mosads}With a tax-filing debacle on the horizon, the AMT is shaping up to be an issue in next year’s congressional campaigns.    

“If this turns out to adversely affect the tax returns of hardworking middle-class Americans, Democrats sitting in Republican-leaning districts will have only themselves to blame,” the press secretary for the National Republican Senatorial Committee (NRSC), Ken Spain, warned.

Democrats said they too would pounce, arguing that Republicans stalled the legislation by blocking several Democratic attempts to patch the AMT without adding to the deficit.

“On issues important to the middle class, like providing tax relief to 23 million Americans, Republicans have a record even the Grinch would be ashamed of. Their extreme positions are not going to sit well with voters in 2008,” said Doug Thornell, press secretary for the Democratic Congressional Campaign Committee.

Congress has yet to send AMT legislation to the White House, despite assurances from both Republicans and Democrats to the IRS and Treasury Secretary Henry Paulson that they would pass a patch before the end of the year.

Most observers expect them to act on the AMT this week, lest 23 million taxpayers get hit with an unexpected tax hike next spring. But by waiting for as long as they have, lawmakers have already raised the risk of a tax-filing mess that could provide fodder for political attacks.

The IRS says it needs seven weeks from the time the president signs the AMT patch into law to update its forms and re-program its computers. Enactment of the legislation this weekend would cause the IRS to push back the start of the filing season to Feb. 11 from Jan. 14.

That would delay the returns of between 15.5 million and 37.7 million filers, holding up between $39 billion and $87 billion worth of refunds, the IRS Oversight Board predicted.

Both parties started laying the groundwork for the blame game weeks ago, when it became clear that enactment of an AMT patch would be delayed amid a partisan dispute over whether to offset its budgetary cost by attaching tax increases.

Democrats have been crafting a portrait of GOP obstructionism on the AMT. “If the AMT hits more taxpayers next year, it’s because of the Republican caucus. That’s clear,” Senate Finance Committee Chairman Max Baucus (D-Mont.) said in a moment of exasperation on the Senate floor two weeks ago.

Meanwhile, Republicans are working to depict a potential filing mess as a failure of the Democratic Congress.

 An end-of-year messaging guide for Senate Republicans distributed earlier this month devotes several bullet points to the AMT. “Democrats have failed to solve their AMT problem, and now millions of Americans will suffer either through higher taxes or delayed tax refunds,” reads one item under the heading “key message.”

Last week, Sen. Chuck Grassley (R-Iowa), the ranking member on the Finance Committee, took steps to gather evidence on the havoc caused by the delay, sending a request to the Government Accountability Office to investigate the impact on the 2008 filing season.

“Sen. Grassley is likely to continue to emphasize that the filing fiasco to unfold is the responsibility of the Democratic leaders in Congress. They’ve been in charge for a full year,” a Grassley spokeswoman said.

Rep. Tom Reynolds (R-N.Y.) placed the blame squarely on the majority’s shoulders in a letter he sent last week to House Speaker Nancy Pelosi (D-Calif.) urging her to pass a clean AMT patch. “Failure to do so would mean not only higher taxes and additional tax filing confusion, but also an unprecedented breakdown of congressional leadership on an issue of fundamental importance to the American people,” he wrote.

Yet Democrats say they have their own ammunition: the three or four times Senate Republicans blocked an AMT patch attached with offsets to keep it budget-neutral. “If they hadn’t wasted so much time rejecting a fiscally responsible solution to an unfair tax on millions of Americans, this would have happened a long time ago,” a spokesman for Senate Majority Leader Harry Reid (D-Nev.) charged.

They also are likely to seize on Republicans for objecting to a House-passed measure that would have raised taxes on private-equity and hedge fund managers to pay for AMT relief, betting that middle-class voters will fault the GOP for adding to the national debt in order to protect a small number of wealthy taxpayers.

Rep. Dennis Cardoza (D-Calif.), a member of the fiscally conservative Blue Dog Coalition that is balking at approving any patch that is not paid for, provided a glimpse of this attack line at a press event last week. “The Senate is picking hedge fund managers over 23 million Americans,” he said.

A member of the House GOP leadership, Rep. Adam Putnam (Fla.), doubts that his own party will be blemished in the end. “Our record of patching the AMT is clear and well established. I am confident that, whatever else people think of Republicans, we are still the party of lower taxes,” he said.