IAFF LEGISLATIVE FACT SHEET

ALTERNATIVE MINIMUM TAX

The IAFF supports legislation to reform the Alternative Minimum Tax to prevent middle income taxpayers from paying more than their fair share of taxes.

BACKGROUND

Since its creation, tax breaks and other incentives have been added to the tax code to make it more equitable and to encourage economic activity that benefits society. As the number of incentives increased, Congress grew concerned that Americans, particularly wealthy Americans, could avoid paying taxes altogether. Therefore, in 1969, Congress created a minimum tax, now known as the Alternative Minimum Tax or AMT, a tax calculation outside the regular income tax to ensure that taxpayers pay a minimum amount in taxes.

Unlike the regular income tax, the AMT was not indexed for inflation. As incomes rise with inflation and, as in recent years, taxes are cut, more and more Americans are caught by the AMT, from 3.5 million in 2006 to an anticipated 23 million in 2007. Since 2001, Congress has passed temporary fixes each year to increase the AMT exemption and shield most Americans from it. Initially created to ensure a minimum amount in taxes was paid, many middle-class Americans are now forced to pay more than their fair share of taxes under the AMT.

Fire fighters in particular have the potential to be disproportionately affected by the AMT because it targets their demographic: married, middle-class taxpayers with children in high-tax states. Fire fighter salary ranges also make them increasingly likely to be affected by the AMT. With increasing health insurance expenses as a result of hazardous and strenuous work conditions and increasing homeland security demands placed on them, fire fighters don’t have room in their monthly budgets for a tax increase.

CURRENT LEGISLATION

U.S. House:          H.R. 3996, the Temporary Tax Relief Act
                          Sponsor:    Representative Charles Rangel (D-NY)

Summary:           As introduced, H.R. 3996 included a one-year AMT fix, extensions of several
                         expiring tax breaks, and expanded eligibility for the child tax credit. 
                         H.R. 3996 paid for this tax relief by taxing so-called "carried interest" earned
                         by private equity firms as income and changing the taxation of corporate interest
                         earned overseas.

CONGRESSIONAL ACTION

On November 5, 2007, the House Committee on Ways and Means approved H.R. 3996.

On November 9, 2007, the House of Representatives passed H.R. 3996 by a vote of 216-193.

On December 6, 2007, the Senate amended H.R. 3996 to provide a one-year AMT fix without offsets and without expiring tax breaks.  The Senate passed H.R. 3996 as amended by a vote of 88-5.

On December 12, 2007, the House passed a second AMT bill (H.R. 4351) which included a one-year AMT fix and an expansion of the child tax credit.  H.R. 4351 excluded the controversial "carried interest" provision in H.R. 3996 and instead paid for the cost with further changes to the taxation of multinational corporations.  H.R. 4351 passed the House by a vote of 226 to 193.

On December 18, 2007, the Senate rejected a motion to consider H.R. 4351 by a vote of 48 to 46.

On December 19, 2007, the House passed H.R. 3996 as amended by the Senate by a vote of 352 to 64, sending the bill to the President for his signature.

On December 26, 2007, President Bush signed H.R. 3996 into law.