WASHINGTON -- The tax-writing panel of the House voted yesterday to boost taxes paid by managers of many investment firms, as part of a broader tax-relief plan for millions of households who would owe extra money this year under the alternative minimum tax (AMT).
The action by the House Ways and Means Committee ignited a struggle that will be played out in the coming days, as members battle over plans to prevent the AMT from hitting 23 million households this year.
More broadly, the debate yesterday was a preview of conflicts over economic policy that will be heard in the presidential campaign and after next year's election.
The measure could be considered on the House floor next week and then move on to the Senate, where leaders have expressed opposition to the proposed tax increases.
While most lawmakers dislike the AMT, they disagree fiercely over whether they should impose new taxes to pay for the $50 billion in relief. The House panel favored some new taxes, on a party line vote in which Democrats prevailed over Republicans 23-13.
"This so-called 'fix' is not a fix at all," declared House Minority Leader John A. Boehner, an Ohio Republican, in a statement. The Democrats' AMT patch, he said, "includes job-killing tax hikes on entrepreneurs and risk-takers who invest and create family-wage jobs for working families.
"The American people won't support it, Republicans will strongly oppose it, and it will never be signed into law."
But Democrats, led by Ways and Means Chairman Charles B. Rangel of New York, said that fiscal responsibility demanded new revenue to offset the cost of an AMT fix.
Democrats on the panel would obtain that revenue from investment managers at private equity firms and hedge funds. They would require that managers of such investment partnerships pay regular income tax rates on earnings known as "carried interest," rather than a lower, 15 percent capital gains rate claimed by many.
They also would block the ability of hedge fund managers and other highly paid executives from using offshore tax havens to shelter income.
Republicans accused Democrats of a huge tax increase, which they said would slam the economy, kill jobs and undermine entrepreneurship.
The tax increase also could apply to real estate and other partnerships, critics pointed out.
"I am worried that we are now beginning to wage a war on jobs," said Eric Cantor, a Virginia Republican. "This is the basis upon which our entrepreneurial growth in this country exists ... you are going to be impacting small business in a big way."
Private equity and hedge funds have been aggressively lobbying Congress to preserve their tax treatment, an effort that will intensify in the coming days. They have argued that higher taxes will make the U.S. less competitive with other countries and jeopardize some of the investment that the firms make here.
"We are disappointed with the Committee's action today and we will continue to oppose legislation to change the tax treatment of carried interest," said Douglas Lowenstein, president of the Private Equity Council, after the committee vote. "We remain hopeful that in the end this legislation will not be enacted into law."
The AMT was enacted in 1969 to make sure that the nation's richest taxpayers pay at least something. But because it was not indexed for inflation, millions of Americans - generally those earning $75,000 a year or more - could find themselves paying higher taxes under the measure unless Congress takes action.
Jonathan Peterson writes for the Los Angeles Times.