Congress is urged to fix alternative minimum tax

Treasury Secretary Henry M. Paulson Jr. warned lawmakers Tuesday that delays in enacting a temporary fix to the alternative minimum tax could cause millions of taxpayers to experience delays in receiving their refunds.

In a letter to Congress, Paulson also again warned that failure to pass an AMT fix would expose 21 million mostly unsuspecting taxpayers to the minimum tax -- and an average tax increase of $2,000.

The alternative minimum tax was designed to make sure that the wealthiest couldn’t use tax breaks or deductions to eliminate their entire tax liability. But the tax doesn’t adjust for inflation, so more middle-class taxpayers are ensnared by it each year.

Democrats have promised to make sure the AMT doesn’t entrap more taxpayers filing next year. But they have yet to agree on specifics or on a possible hike in revenues elsewhere in the tax code so that an alternative minimum tax adjustment doesn’t add to the deficit.

Republicans say that because the alternative minimum tax wasn’t intended to hit the middle class, legislation to reform it should not require tax cuts to be “paid for” with loophole closures or rate increases.