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Democrats Pressured on PAYGO

Republicans say Democrats are feeling the heat for months of inaction on a patch to the alternative minimum tax and ultimately will have to waive their much-vaunted “pay-as-you-go” rules.

The latest piece of evidence: A new letter from House and Senate tax writers to the IRS telling the agency that an AMT patch is forthcoming and to plan accordingly. Republicans say that’s only going to happen if Democrats agree not to pay for the patch, because Republicans in the Senate are vigorously opposing any attempt to find offsets and have the power to block any deal.

The letter is signed by House Ways and Means Chairman Charlie Rangel (D-N.Y.), Senate Finance Chairman Max Baucus (D-Mont.) and the two panels’ ranking members, Rep. Jim McCrery (R-La.) and Sen. Chuck Grassley (R-Iowa).

“We want to assure you that legislative relief is forthcoming so that no new taxpayers will be subject to the AMT for taxable year 2007,” the letter reads, despite having absolutely no agreement among the quartet over how and whether to pay for it. Instead they pledge to do “everything possible” to enact a patch mutually agreeable to the two chambers and President Bush before the end of the year.

A GOP aide with knowledge of the tax fight said the letter shows that Democrats are feeling the heat over potential delays to tax refunds and warnings that the IRS may have to toss millions of tax forms, and said it telegraphs that Democrats ultimately will have to waive PAYGO rules.

“I don’t see any way they can agree to an offset package by then, or they violate PAYGO and their claims of fiscal responsibility go out the window,” the GOP aide said. “They are eight months late on a patch and the IRS is going to start printing forms next week. …

“The question that it raises in my mind is why we are having a markup tomorrow morning where Chairman Rangel will have all of his guys vote for tax increases that are unnecessary,” the aide said. “Are they going to make their vulnerables take this vote on the floor when they know the Senate isn’t going to move it?”

The answer to that question is a firm yes. Regardless of whether Democrats ultimately shelve PAYGO for AMT, House Democrats will at least muscle through a bill so they can either blame the Senate or Senate Republicans later if an offset package can’t pass that chamber.

Rangel, who will unveil his package of offsetting tax revenue for his roughly $70 billion tax package today, said the pressure remains on the Democratic-controlled Senate to deliver.

“The news has to be what happens when a paid AMT patch goes to the Senate,” Rangel said, and the Senate refuses to pay for anything. “We’re talking about a train wreck.”

Rangel acknowledged that Democrats ultimately might cave on PAYGO rules, but added, “It could very well be that the Senate will come up with the pay-fors. Either you don’t pay for it or you do. You can’t negotiate with zero.”

Rangel described the next few weeks as a great constitutional battle, and is at least talking tough.

“I’m telling them this is it, this is our bill, and they’re laughing at me,” Rangel said.

An aide to Baucus said that it is premature to read in to the letter what will happen on PAYGO. “Chairman Baucus is still working with his colleagues to determine the best way forward,” the aide said.

Baucus has talked about moving forward in the most fiscally responsible way possible, but has not committed to offsetting a patch.

Senior Senate Republicans led by Grassley, meanwhile, sent their own letter to Democrats on Wednesday offering their assistance in passing a patch, but only if it doesn’t include offsetting tax hikes.

The Bush administration also weighed in on Wednesday against offsets.

“The president included a one-year AMT patch in his budget that was introduced in February, and it was budgeted for,” Sean Kevelighan, spokesman for the Office of Management and Budget, said. “We don’t think a one-year patch should be paid for. Americans won’t see this as a tax cut, they’ll see it as preventing a tax increase.”

House Democrats at least publicly are vowing to keep pushing fealty to PAYGO rules and aim to push hard on the Senate and Republicans to back offsets.

“I don’t think there will be many votes out of the Blue Dogs with regards to waiving PAYGO for the AMT patch,” Rep. Dennis Cardoza (D-Calif.) said. “The commitment to PAYGO is profound and deep.”

Cardoza said a waiver for PAYGO could cause problems with enforcing PAYGO rules for other bills next year: “There is a concern that once you start going down this road, it will become an easier road to go down.”

Rep. Jim Cooper (D-Tenn.), another fiscal conservative, was stunned to hear of the letter to the IRS coming without an agreement, and called it a “worrisome development.”

“I’ve never heard of a preemptive agreement like that,” Cooper said. “That’s really amazing. Usually you have to legislate.”

Rep. Artur Davis (D-Ala.), however, said that the pressure would be on Republicans not to block an AMT relief package lest 20 million taxpayers get a tax hike, and predicted Senate Republicans wouldn’t be able to sustain opposition to it.

“Democrats are trying to give tax relief to millions of Americans and doing it with a commitment to fiscal responsibility,” he said.

But Rep. Adam Putnam (Fla.), chairman of the House Republican Conference, looked on with amusement. “They break it for AMT, what other must-pass things are they going to break it for?” he asked. “They have made their bed and they are now having to deal with the consequences. They could have worked with us and dealt with this months ago.”

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