An AMT fix is needed ASAP

The debates in Congress about whether to extend the Bush-era tax cuts and unemployment benefits, and about the DREAM Act, which would give children of illegal immigrants a path to citizenship, have delayed action on another tax measure that must be addressed: the annual temporary fix of the alternative minimum tax.

If the AMT isn’t adjusted, about 21 million additional households will face an average tax increase of between $3,000 and $5,000, according to some estimates, and that will hurt the economy.

Members of Congress generally accept the need to pass the adjustment to the AMT, but the effort to move it forward has been stymied by the debates on the more controversial matters.

On Nov. 9, Sens. Max Baucus, D-Mont., and Charles Grassley of Iowa, the chairman and top Republican on the Senate Finance Committee, and Michigan Reps. Sander Levin, a Democrat who is chairman of the House Ways and Means Committee, and David Camp, the ranking Republican on the committee, wrote a letter to Internal Revenue Service Commissioner Douglas Shulman stating that they were drafting legislation to set the 2010 exemptions at $72,450 for married taxpayers filing jointly and $47,450 for singles. The exemptions currently are $45,000 and $33,750.

As there is virtually no opposition to the AMT fix, it should have been an easy bill to pass and it might have helped generate at least a spark of compromise on the other issues.

But no action was taken on the measure before members of Congress left town for the Thanksgiving recess, and the concern is that the AMT patch might again get lost in the fight over the question of the future of the Bush-era tax cuts, the debate over a continuing resolution to keep the government running, an increase in the federal-debt ceiling, etc.

Failure to pass an adjustment to the AMT would seriously harm the economic recovery. Even a delay in passing the bill could harm the economy because the IRS needs time to change its systems for checking income tax returns.

A delay in passing the bill means that the IRS may not be able to check the returns of early filers promptly and income tax refunds may be delayed, keeping the money out of the hands of those who are most likely to spend it.

In 2007, despite a similar vow to the IRS that it would soon pass a fix, Congress delayed passage until after its Christmas break. As a result, the IRS was unable to begin processing returns until mid-February 2008 and tax refunds were late reaching taxpayers.

This year, the tax refunds are expected to be almost $300 billion, which could be good for the economy.

The AMT fix should be Congress’ first order of business when it returns to work next week. Then it should pass an extension of unemployment benefits and the continuing resolution to keep the government running.

After that, it can resume the fight over the Bush-era tax cuts.