A Democratic substitute offered by Rep. Richard Neal (D-Mass.) to the conservative-backed Alternative Minimum Tax (AMT) bill (HR 4227) failed to pass. The vote was 197-228 on the Neal substitute amendment, which would have exempted individuals with gross incomes of less than $125,000 and married couples with incomes below $250,000 from the AMT in 2005. The AMT was created under President Nixon to prevent wealthy Americans and big corporations from using legitimate tax breaks to avoid paying income taxes altogether. More than three decades later, because of the failure to index it for inflation, the number of taxpayers subject to the so-called alternative minimum tax (AMT) has exploded to include many in the middle class, far beyond the intended target group. And there is widespread support in both parties for a permanent restructuring of the 1969 law. But faced with mounting deficits and rising costs for the Iraq war, lawmakers agreed on a short-term fix - and postponing expensive long-range changes until after the elections. Neal's plan would have phased in AMT liability for individuals with income between $125,000 and $145,000, and married taxpayers with income between $250,000 and $290,000. Neal proposed to offset the $19.3 billion cost of this tax reform by restricting certain tax shelter transactions, specifically by restricting corporate bookkeeping practices aimed at reducing corporate taxes. Progressives hailed the substitute as the more responsible bill that would provide relief to more than 10 million families while not increasing the budget deficit, they said. Progressives said Neal "unambiguously and completely" exempts married couples with incomes under $250,000 from the AMT, while the Republican bill gives "big breaks" to those couples making more than $250,000 who need tax relief the least and have already most benefited from the Bush tax cuts. In contrast, progressives asserted, HR 4227 does not provide effective AMT relief for lower-income households, nor is it paid for with any offsetting revenue increases or spending cuts. But conservatives called the Neal payment plan a "tax hike," and said tax relief already is lifting the economy. At a time when our economy is struggling, the idea of permanently raising corporate taxes is one that is ill conceived, conservatives said. The failure of Neal's substitute amendment effectively precludes the House from having a meaningful debate over whether AMT reforms should be paid for via corporate tax increases.