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Senate Passes Tax Relief Without Offsetting Revenue
By an overwhelming 88-to-5 margin, the Senate on Dec. 6 voted to extend short-term relief from the Alternative Minimum Tax (AMT) for another year, which would prevent an additional 20 million Americans from being subject to the tax.
However, the bill includes no offsetting spending cuts or tax increases, a significant difference from the House-passed AMT relief measure.
Earlier this year, the House passed “pay-as-you-go” rules that require offsets for all tax cuts to make them revenue neutral. One of the primary revenue offsets for the one-year AMT patch approved by the House last month would be a change in the taxation of carried interest from the current 15% capital gains rate to ordinary income tax rates that can run as high as 35%.
NAHB opposed the House AMT bill because the move to tax "carried interest" to pay for the measure would impose a multi-billion dollar tax increase on real estate at a time when the industry is in the midst of a cyclical downturn.
Making the issue more complicated, there are two schools of thought in Congress. On the one hand, many lawmakers in the Senate strongly believe that a “clean” AMT bill should be approved without any revenue offsets because AMT revenue was never intended to be collected in the first place. They are at odds with House Democratic leaders, who insist that pay-as-you-go budget rules are essential to enforcing fiscal discipline and not adding further to the national debt.
The Senate bill now goes to the House, and Ways and Means Committee Chairman Charlie Rangel (D-N.Y.), who insists that Congress must pass AMT relief without adding to the national debt, has indicated a willingness to compromise.
“We will make adjustments to the bill to address some of the political opposition in the Senate as it relates to bringing equity into the tax code for managers of equity and hedge funds, but we will continue to pursue this issue,” said Rangel. “At this time, we are looking to close a loophole where billions of dollars in offshore funds have escaped taxation.”
Meanwhile, the Bush Administration continues to warn that further debate on AMT relief risks delaying millions of tax refunds, because the IRS won’t have enough time to reprogram its computers to cope with late congressional action.
NAHB continues to urge Congress to move quickly to pass a fix to the AMT and to drop a provision that raise taxes on the carried interest of private equity managers, venture capitalists and real estate investors.
For more information, e-mail Greg Brown at NAHB, or call him at 800-368-5242 x8421.
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