White House plans to knock out tax relief extension

The White House notified Congress Nov. 8 that President Bush is being advised to veto a tax bill that would keep millions of taxpayers from falling prey to the alternative minimum tax. AMT was originally aimed at high-income taxpayers, but the threshold will begin to ensnare middle-class taxpayers unless exemptions, called a patch, are extended – a change that would affect Internal Revenue Service systems and delay tax return processing.

Although the administration supports AMT relief and includes it in the president’s budget request, the White House objects to the House version because it increases taxes on a limited category of investor and business-related groups. The House is expected to vote on the Temporary Tax Relief Act today. The bill extends exemptions and some tax credits to keep middle-class taxpayers from becoming subject to a higher tax bill.

“The president’s senior advisers would recommend that he veto the bill,” according to a statement of administration. Bush does not seek cuts elsewhere or taxes to offset the AMT patch because it is not a tax credit.

If the AMT patch is approved and signed by Bush, IRS has said it would take 10 weeks to change its systems to incorporate the tax law change, which would delay the processing of tax returns and refunds.

Charles Rangel (D-N.Y.), chairman of the House Ways and Means Committee, said the AMT tax relief is paid for by closing loopholes and eliminating narrowly targeted tax benefits enjoyed by a privileged few.

“This legislation is the responsible, fair and equitable way to provide millions of working families with tax relief from the AMT and extend expiring provisions,” he said. It would change the tax treatment and rate of “carried interest” for investment fund managers, similar to the treatment for the same services provided by other corporate professionals, he said.

The tax bill would also extend or expand credits or deductions for children, education tuition, teacher out-of-pocket expenses for the classroom, property taxes, and state and local sales taxes.

The White House also faults the tax bill for repealing authorization for IRS to use private agencies to collect delinquent taxes so IRS employees can focus on more difficult and complex outstanding tax cases.

“Terminating this program would result in a loss of significant revenue over the next ten years,” the statement said. The program aims to help reduce the tax gap and increase compliance.

About the Author

Mary Mosquera is a reporter for Federal Computer Week.

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