Minimum tax may spur 'fiscal-cliff' action

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WASHINGTON, Nov. 5 (UPI) -- An alternative minimum tax "patch" by U.S. lawmakers may be the key to avoiding the pending "fiscal cliff" of tax increases and spending cuts, observers say.

If Congress doesn't act by the end of this year, more than 26 million households will get their first taste of the AMT, which threatens to raise taxpayers' bills an average of $3,700 for the current tax year, The Washington Post reported Sunday.

The expiration of tax-rate reductions enacted when George W. Bush was president garnered most of the headlines, but if Congress fails to pass an AMT patch the average household with two children and an annual income of more than $75,000 likely will have taxes raise dramatically for 2012.

Unlike most tax increases in the fiscal cliff, the AMT bill would come due almost immediately, the Post said, making it extremely troublesome to try to fix it after the 2012 tax year ends Dec. 31.

"That would be a disaster, an unmitigated disaster for the taxpayers of the United States. It's just not possible to do that," Nina Olson, national taxpayer advocate at the IRS, told the Post.

Lobbyists and aides in both parties say it is hard to imagine Congress would allow 2013 to arrive without AMT patch legislation, which some say could force Republicans and Democrats to work together to address the fiscal cliff -- $500 billion in tax increases and automatic spending cuts that take effect in January.

Lawmakers first put the minimum tax into place more than 40 years ago in reaction to wealthy people who legally avoided paying taxes. But the AMT is not indexed for inflation, so Congress has had to regularly approve an AMT "patch" to ensure it doesn't hit more middle-class families.