Transcripts

Will The AMT Patch Hold or Hold Up Returns?

PAUL KANGAS: There's a tug of war over taxes on Capitol Hill, specifically over the alternative minimum tax. The House Ways and Means Committee today passed a bill to patch the AMT for a year, so 23 million taxpayers are protected from it. There's widespread agreement the tax should be changed. But as Stephanie Dhue explains, the question is just how to pay for it.

STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: If the alternative minimum tax is temporarily tweaked so fewer Americans pay it, the result would be a $50 billion hole in the Federal budget. House Ways and Means Committee Chairman Charlie Rangel says that hole should be filled.

REP. CHARLES RANGEL, CHAIRMAN, WAYS & MEANS COMMITTEE: We say, don't borrow the money, make up for it, find out where there's unfair advantage, but raise the revenue that way.

DHUE: One proposal to raise revenue is to change the tax treatment for investment management services known as carried interest. That change would mean private equity and hedge fund managers will pay a 35 percent income tax rate, as opposed to the 15 percent capital gains rate they currently pay. That would hit hedge fund and private equity billionaires like Stephen Schwarzman and Henry Kravis. Similar groups like real estate partnerships and venture capital firms would also pay higher taxes under the same proposal. But those groups want to be treated differently than private equity. Mark Heesen represents venture capital firms.

MARK HEESEN, PRES., NATIONAL VENTURE CAPITAL ASSOC.: We're the innovators. We're supporting entrepreneurs. We work with entrepreneurs from the very beginning. If anything we are more akin to entrepreneurs and founder stock than we are to a financial engineering entity.

DHUE: The tax battle this year is a warm-up for a larger debate that will happen in the next Congress. Deloitte tax expert Clint Stretch says to permanently repeal the AMT and extend the Bush tax cuts will require major changes.

CLINT STRETCH, TAX PRINCIPAL, DELOITTE TAX: We're going to be looking at changing individual rates. We're going to be looking at limiting mortgage interest deductions or health care exclusions or state and local tax deductions. Those things are really scary.

DHUE: While lawmakers promise to fix the AMT this year, time to do that is running short. Because the IRS needs some lead time, if the fix isn't in place in the next few weeks, 50 million filers could see their returns seriously delayed. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.