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GOP could have 'cliff' trump card

President Barack Obama, right, and House Speaker John

President Barack Obama, right, and House Speaker John Boehner. (MCT) Credit: President Barack Obama, right, and House Speaker John Boehner. (MCT)

Republicans may have some leverage in their fiscal cliffhanger with President Barack Obama: the threat of forcing a disproportionate number of Democrats to pay the so-called alternative minimum tax for the first time.

By law, taxpayers each year must pay the greater of regular federal income tax and the AMT. The latter requires taxpayers to give up certain tax breaks, typically exemptions and deductions for state and local taxes and medical costs.

Only some 4 million taxpayers pay the AMT because Congress routinely "patches" the AMT for inflation to spare middle-income taxpayers. Without a patch for 2012, up to 33 million taxpayers will have to pay an AMT liability, according to the IRS. That is one in five taxpayers.

Since many taxpayers subject to the AMT live in the Democratic strongholds of New York, California and Illinois, the threat of a lapse may be the Republicans' strongest card after Obama's re-election last month on a theme of tax fairness.

Obama's Democrats and Republicans, led by House Speaker John Boehner, have been battling while trying to keep from falling over a $600 billion "fiscal cliff" - a combination of tax increases and spending cuts due to be implemented early next year.

Now at a standstill, talks on how to avert the fiscal cliff have been largely focused on whether to renew low tax rates for the wealthiest taxpayers.

Because the latest AMT patch expired in 2011, it is in some ways more urgent to address the AMT than the Bush-era tax cuts expiring at the end of December. Congress last patched the AMT in 2010.

Also Tuesday, Obama told Bloomberg that while tax rates must go up for a "fiscal cliff" deal, it may be possible to lower rates at the top end of the scale late next year as part of tax reforms that would close loopholes and limit deductions.

"It's possible that we may be able to lower rates by broadening the base at that point," the president said.

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