They want an extra $50 billion

By the first week of December 2006, an extension of a sales tax deduction and a “patch” for the dreaded alternative minimum tax had been passed by a “do-nothing” Republican Congress and sent to President Bush’s desk.

But now that Democrats run the show on Capitol Hill, they’re disinclined to do anything, much less spare millions of middle-class families from higher tax bills. It’s the first week of December, and the latest temporary fix for the AMT is apparently lost in a stack of appropriations and other business that should have been wrapped up by Thanksgiving.

The Internal Revenue Service has been pleading with Congress for a month to finalize this year’s tax policies to prevent delays in processing next year’s returns. Of utmost urgency is the AMT, which was created in 1969 to force several dozen super-wealthy households from avoiding the income tax by claiming every legitimate deduction available to them.

Because the levy was not indexed to inflation, every year more filers make the painful discovery that they’ve claimed “too many” otherwise proper deductions — higher state and local taxes, higher interest payments on the mortgage, a few too many charitable donations — and must calculate their punishment on a different set of worksheets. The AMT always brings a higher tax payment than a standard, itemized return.

Congress regularly plays political football with AMT relief, but has always come through with an inflation adjustment that spares most taxpayers. This year, though, lawmakers returned to work Monday with little hope of striking a deal. As a result, instead of hitting about 4 million filers, the AMT is set to metastasize and envelop up to 27 million households. Families with adjusted gross incomes of as little as $75,000 could be subject to a $2,000 tax hike.

The hang-up is the insistence of the Democratic leadership that massive tax increases be attached to the AMT “patch.” Senate Majority Leader Harry Reid and House Speaker Nancy Pelosi are desperate to spend the $50 billion that AMT “bracket creep” could bring pouring into the treasury. So before they give up that loot, they want a promise that wealthy investors will face added taxes to make up the difference — never mind that this revenue stream wasn’t supposed to exist in the first place.

President Bush has made it clear he’ll veto any tax increase that accompanies an AMT fix.

At best, this continued partisanship ensures delays in the filing and processing of tax returns and longer waits for refund checks from the IRS. At worst, it will result in huge tax increases for Americans across most social and economic lines.

The best solution has been introduced by Sen. John Ensign, R-Nev. His bill would abolish the AMT once and for all, as well as make permanent the cuts on capital gains, dividends and income taxes that are scheduled to expire in 2011.

Republicans should have passed this legislation when they were in the majority. But at this point in the game, any tax relief is better than none. What remains to be seen is whether greedy Democrats are inclined to show any mercy on the middle class, at all.