By Ryan J. Donmoyer and Alison Fitzgerald
Dec. 6 (Bloomberg) -- Congress moved closer to ending a standoff on how to protect taxpayers from the alternative minimum tax as two top Democrats said they would no longer link it to a proposed tax increase on private equity executives.
House Ways and Means Committee Chairman Charles Rangel agreed to drop the tax increase after Senate Republicans refused to include it in a plan to stop an alternative minimum tax increase this year on 23 million American households. Senate Majority Leader Harry Reid made a similar offer earlier today. Rangel said Republicans agreed to a tax increase on hedge fund managers.
``We will make adjustments to the bill to address some of the political opposition in the Senate as it relates to bringing equity into the tax code for managers of equity and hedge funds,'' Rangel said. ``We are looking to close a loophole where billions of dollars in offshore funds have escaped taxation.''
The concessions suggest lawmakers are close to resolving a monthlong stalemate in which Democrats insisted that to curb the alternative minimum tax they must raise the $50 billion in lost revenue. Republicans said they wouldn't boost other taxes to pay for a levy that was never intended to affect millions of taxpayers.
Rangel said he would remove a provision that would boost the tax on so-called carried interest, the performance fees that managers of private equity firms, hedge funds and some real estate and oil and gas partnerships earn. In return, Republicans agreed to limits on how much money hedge fund managers can defer offshore tax free, Rangel said in a statement.
Offshore Hedge Funds
Yesterday, Louisiana Congressman Jim McCrery, the ranking Republican on the Ways and Means Committee, said he sees merit in that Democratic proposal that would effectively raise taxes for managers of offshore hedge funds by almost $24 billion over a decade.
Members of Congress are looking ways to curb the reach of the alternative minimum tax, which risks hitting 23 million more households with an average tax increase of $2,000 this year. The fix costs $50 billion, according to budget officials.
Rangel said he intends to bring up the carried interest tax provision again next year. Rangel didn't rule out other tax increases to pay for the minimum tax fix.
Republicans earlier today rejected on a procedural vote a House-passed bill on the alternative minimum tax that included a $54 billion tax increase on managers of hedge funds and buyout firms that Democrats said was needed to keep the federal budget balanced. Republicans said Democrats shouldn't raise taxes permanently on Wall Street executives to relieve burdens on middle-income Americans for only one year. The vote to debate the measure was 46-48, 14 votes short of the 60 necessary to proceed.
Tax Return Processing
The Internal Revenue Service and White House have said the late resolution of the minimum tax may hold up tax return processing and refunds in 2008 for tens of millions of U.S. households.
``I say, stop the games,'' said Montana Senator Max Baucus, the Democrat who is chairman of the Finance Committee. ``It's not the time to play politics. It's a time to get things done.''
The proposal, which could have been adopted immediately with unanimous support, failed when New Hampshire Republican Judd Gregg, the ranking Republican on the Senate Budget Committee, objected. Gregg didn't explain his objection.
The House in November adopted a measure that packages the minimum tax relief and tax increases on hedge fund and buyout firm executives with renewal of dozens of other tax breaks that expire at the end of this year.
House Majority Leader Steny Hoyer said today that he and other House Democrats continue to believe any minimum tax relief should be offset with tax increases to keep the budget balanced.
``I absolutely reject a fiscally irresponsible approach to fixing the AMT,'' Hoyer said.