With Key IRS Deadline Looming Tomorrow, Democrats Set to Delay Tax Refunds for 50 Million Americans

Every year, millions of American families pay down their holiday credit card debt or begin planning and paying for a summer vacation with their annual income tax refunds.  In fact, with the holidays approaching and the tax season not too far behind, many families may already be making plans for how they plan to spend their refund checks.

To these families, congressional Democrats have this advice: not so fast. 

That’s because Congress is 24 hours away from missing a key deadline that could lead to massive delays in tax refunds for tens of millions of Americans next year.  Worse yet, more than 20 million Americans are in danger of being hit with a tax they’ve never had to pay before because Congress never intended for them to pay it in the first place. 

Why is this happening?  Because the Democratic leadership in Congress has dropped the ball on protecting middle-class families from the onerous alternative minimum tax (AMT).  The AMT was established in the 1960s to ensure the nation’s wealthiest earners paid an income tax.  Because the thresholds of the tax were not indexed to inflation, however, more taxpayers — including millions of middle-income earners — risk paying the tax than originally intended. 

To protect them, Republican-led Congresses regularly passed a “patch” to protect middle-class taxpayers, who would lose mortgage and child tax deductions and pay thousands more in federal taxes if they were forced to pay the AMT.  Unfortunately, this Congress hasn’t acted with the same sense of urgency.  In fact, Congress hasn’t acted at all – even though congressional leaders knew for months that this problem needed to be addressed.

Sensing an oncoming AMT crisis, Treasury Secretary Hank Paulson recently warned Congress that if middle-class taxpayers weren’t protected from the AMT by tomorrow, November 16, 2007, Internal Revenue Service tax forms would be printed under the assumption that some 21 million additional taxpayers would be forced to pay the tax.  By simply missing this deadline, 50 million taxpayers will see a significant delay in the arrival of some $75 billion in refund checks next year, according to Secretary Paulson.

So has Congress heeded this warning and enacted an AMT patch to avoid mass confusion for millions of American taxpayers?  Of course not.  Instead, political games have ruled the day on Capitol Hill, with House Democrats last Friday backing a 130 percent tax hike on entrepreneurs who create family-wage jobs — cleverly disguised as part of an AMT fix.  To make matters worse, it’s a permanent, $81 billion tax increase to pay for one-year of tax relief.  Now that’s congressional logic for you: sure, we’ll give you some relief, but only if we can raise other taxes…and raise them for good. 

This $81 billion tax hike is widely recognized as the first installment of the Pelosi-Rangel $3.5 trillion Mother of All Tax Hikes, which the nonpartisan Joint Committee on Taxation last week confirmed would raise taxes for no less than 90 percent of American taxpayers.  That should give you an idea of how Democrats would like to pay for future AMT patches (not to mention their massive, pork-filled agenda): with more and more tax increases.  It’s really just a giant shell game.

The sham AMT patch approved by the House last week will never become law, and the Democrats know it.  The Senate won’t support it, the President won’t sign it, and House Republicans will easily sustain the President’s veto if it ever gets to that point.  So, in these last 24 hours before Congress begins a two-week recess, you would assume that the Majority leadership is finally getting the message that it’s time to act, right?  Once again: not so fast.  Senate Majority Leader Harry Reid (D-NV) told reporters recently — in fact, two weeks after Secretary Paulson’s warning — that Congress will not protect taxpayers from the AMT until at least after Thanksgiving.

With the November 16th deadline now an afterthought for Congress, the oncoming delays in tax refunds will only worsen.  From the date an AMT patch is finally enacted — if one ever is — the IRS estimates it will take 12-13 weeks to reprogram, test, and integrate the changes into the complex computer programs and systems that process tax returns.  That will make for a very anxious spring for millions of American families — and for no good reason.  Indeed, when the American people looked to Congress to complete even this simplest of tasks — enacting a patch that has been routinely enacted every year — the Majority leadership has completely and utterly failed to get the job done.

Congress’ inaction on the AMT is a perfect example of why the institution is suffering all-time low approval ratings.  At a time when American families are struggling with the rising cost of living and a record high tax burden, tax refunds represent some welcome relief to help them deal with a budget crunch at home.  But instead of bipartisan cooperation to ensure that these refunds arrive as they normally would any other year, this Congress has only offered one political game after the next.  The American people expect more out of Congress, but until the Majority realizes that and finally starts working with Republicans to address priorities like tax relief and spending reform, there’s no telling how low the approval ratings will go.