WASHINGTON The House stopped a potential tax nightmare for about 128,000 Utahns by passing a one-year patch to a complicated tax law Wednesday just before ending the first session of the 110th Congress.
With a 352-64 vote, the House approved a temporary fix to the alternative minimum tax, known as AMT, an additional income tax originally designed in 1969 to stop the rich from abusing tax deductions. Because the tax is not adjusted for inflation, more middle- and upper-middle income families would have been stuck paying a higher tax on their 2007 returns had Congress not intervened.
The higher tax could be as much as $2,000, although it varies based on a payer's situation.
"We had to do it or it would have screwed up everyone's tax return," said Utah's U.S. Rep. Chris Cannon, R-3rd District.
AMT returns in Cannon's district would have jumped from roughly 3,300 to about 37,000.
Democrat Rep. Jim Matheson, of Utah's 2nd Districtand a member of the fiscally conservative Democratic Blue Dog Coalition, did not vote for the patch. Matheson said he wants to see the AMT changed, but this effort is not the right way to do it.
Anyone who voted for this bill thinks that "deficits don't matter, but I think they do," he said.
Based on 2005 IRS data, the latest available, about 18,000 tax returns in Utah had to file under the alternative minimum tax. Just more than 128,000 returns in Utah would have had to file under the tax in 2007 without the "patch" approved by the House on Wednesday, based on the committee's estimate.
Without the revision, the number of filers subject to the AMT in Matheson's district would have risen from 8,100 to an estimated 54,000. Utah's 1st Congressional District would have gone from 4,691 to 37,285.
The Senate approved the same patch and President Bush has said he will sign it.
"This is going to be a huge help," said Thom Hall, a certified financial planner with Financial Strategies Institute in Midvale. Hall said an "enormous number" of his clients would have likely had to pay the higher tax because the law would have prevented them from using tax credits as they have in the past.
Hall said if someone paid the AMT in 2006, they likely will have to again. The patch, though, prevents some filers particularly those with large families from losing certain deductions.
"AMT is just a perfect example of the law of unintended consequences," Hall said.
There is little argument that the additional tax needs to be fixed, but exactly how it should be fixed was subject of intense political debate before the patch was passed.
The one-year fix would eliminate an estimated $50 billion in tax revenue that House Democrats had insisted must be paid for by an equivalent amount of revenue elsewhere. The House passed two different bills that funded the eliminated tax loopholes, but the Senate did not pass either version, which forced the House to take up the Senate version of the bill that provided the patch but no way to pay for it.
"Even the president assumes that AMT is collected," Matheson said, referring to proposed budgets and other long-term planning that include money collected through the AMT. He said it either needs to be accounted for or taken out of the long-range planning.
He said that $50 billion will go up each year Congress passes a patch until there is a major reform.
Matheson and House Speaker Nancy Pelosi, D-Calif., were among the 64 Democrats who rejected the bill."Fiscal responsibility and accountability are core Democratic values," Pelosi said. "We are committed to pay-as-you-go, no new deficit spending."
The Associated Press contributed to this report.