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Democrats Feel Pressure on AMT

Republicans and the Bush administration stepped up pressure on Democrats on Tuesday to finally pass an expensive patch to the fast-growing alternative minimum tax, but House Democrats remain frustrated that their Senate counterparts have not shown a willingness to pay for the relief with offsetting tax hikes.

Treasury Secretary Henry Paulson warned lawmakers Tuesday that the Internal Revenue Service would start sending tax forms to printers by Nov. 7 and that delaying a patch until December could delay getting tax refunds to an estimated 50 million taxpayers and result in major headaches for taxpayers and the IRS.

“To avoid confusion and delays for taxpayers, it is critical that an AMT patch be enacted by early November,” Paulson said.

Democrats said on Tuesday that they want to adopt AMT relief as soon as possible, but the question of how or whether to pay for it remains a stumbling block. Democrats have been reluctant to force Members to vote for tax hikes that will not get through the Senate, but also do not want to violate their pay-as-you-go rules that they have touted as the cornerstone of their claim to restoring fiscal responsibility.

“That’s been a concern all along,” said Rep. Richard Neal (D-Mass.), chairman of the Ways and Means Subcommittee on Select Revenue Measures. “It’s been a real problem all year. Hopefully the logjam will be freed.”

House Democrats blame a reluctance on the part of the Senate to embrace offsetting tax hikes that would face a certain filibuster attempt.

“It’s very obvious we’ve got our work cut out for us in terms of the other body,” Neal said.

Sen. Chuck Grassley (R-Iowa) and Rep. Jim McCrery (R-La.), the ranking members of the Senate Finance Committee and the House Ways and Means Committee, respectively, seized on Paulson’s letter to urge quick passage of a one-year AMT patch without offsets.

McCrery said he personally urged Ways and Means Chairman Charlie Rangel (D-N.Y.) on Tuesday to embrace such a patch, even though it would violate PAYGO rules.

McCrery expects Rangel to push forward with offsets for now, but doesn’t think they will become law.

“I don’t have any doubt that the president would veto it,” he said. “I’m still hopeful that in the end Chairman Rangel will agree that we shouldn’t pay for the AMT.”

But Rangel said Tuesday that he intends to move an AMT patch quickly with offsets and extensions of other expiring tax cuts, but clearly has been frustrated by the Senate.

“They don’t want to pay for anything,” he grumbled, but said he plans to press on.

“The House will do what the House has to do,” Rangel said, rejecting the idea that he should rein in offsets because of concerns about a Senate filibuster.

“We have a more serious problem over here with PAYGO,” Rangel said. “They don’t have any rules over there?”

Democratic Caucus Chairman Rahm Emanuel (Ill.) also promised that AMT relief would be offset. “Anything that we do on AMT will be paid for,” he said. And he added that Republicans don’t have credibility on the issue. “They have a budget that relies on 10 years of revenue from the AMT,” he said.

Rangel said he still hopes to hash out a deal with the Senate quickly.

“In any event we will meet the deadline that the IRS sets,” he said.

Rangel will finally introduce his massive $1 trillion tax overhaul on Thursday, which Democrats say will provide tax cuts for 90 million Americans, offset by tax hikes on the wealthy and closing tax shelters. The bill is expected to be dramatically pared down to an AMT patch along with extensions of other tax cuts such as one for research and development alongside a grab bag of offsets culled from the larger package. Rangel and Republicans also have talked about the possibility of cutting corporate tax rates, offset by closing some corporate tax shelters.

An aide to Senate Finance Chairman Max Baucus (D-Mont.) said he wants to reach a deal soon.

“Chairman Baucus is aware of the need for timely action on the AMT and is working with his colleagues on the Finance Committee to move forward in an expeditious and responsible manner,” the aide said, adding that he was also in talks with Rangel.

Grassley stopped short of saying Senate Republicans would unilaterally oppose an AMT bill that includes offsets and said Baucus would be better served by using the limited universe of “pay-fors” to offset other must-pass legislation such as tax extenders and blocking a planned pay cut for Medicare physicians.

“We’ve got a terrible problem raising all the offsets” for other legislation, Grassley said.

And he offered to help Democrats avoid having to pay for the fix, saying Republicans would support waiving PAYGO budget rules in the Senate — which require 60 votes to succeed.

“I would think they would welcome the opportunity for us to help,” Grassley said.

“We need to do it quickly, we need to do it now — otherwise we are looking at a ‘filing fiasco’ come April 15,” Grassley said, urging Democrats to schedule floor time. “This hot potato has just gotten a lot hotter.”

Republicans, meanwhile, said they would be comfortable voting against a patch for AMT that would prevent about 20 million additional Americans from falling into its net if it is tied to offsetting tax hikes.

“This appears to have all the makings of a bad bill that passes the House on a party-line vote, but is met with laughter by the Senate,” said Brian Kennedy, spokesman for House Minority Leader John Boehner (R-Ohio). “It’s an emerging pattern with this majority, and it’s one of the reasons they’ve accomplished so little in the last 10 months.”

“There is no tax increase that will be as appealing as not having a tax increase,” another House Republican aide said.

“House Republicans say no offsets, Senate Republicans say no offsets, Senate Democrats are probably saying no offsets and House Democrats are insisted on raising taxes,” the aide said. “We’re comfortable with our position on this.”

Emily Pierce contributed to this report.