updated 9/24/2008 8:22:13 PM ET 2008-09-25T00:22:13

The House took steps Wednesday to rein in the alternative minimum tax, carrying out what has become an annual ritual to protect millions of people from getting squeezed by the unwanted tax.

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The House voted 393-30 to increase the AMT exemption in 2008, saving more than 20 million taxpayers from getting hit with a tax increase averaging about $2,000.

The House separately approved, 419-4, some $8 billion worth of tax relief for disaster victims.

The votes came a day after the Senate similarly adjusted the AMT as part of a major tax package that included disaster relief, extension of business and individual tax breaks that have expired or will soon expire, and tax incentives for renewable energy investment.

The House is preparing a third bill to address the energy and tax break extension issues. Both the disaster and energy bills differ from the Senate measure, and it will be a challenge for lawmakers to come up with a compromise in the last few days of this session of Congress.

The AMT was created in 1969 to catch a very small number of rich tax dodgers, but it affects more people every year because the tax is not indexed for inflation. Without congressional action this year, those hit by the AMT could grow from around 4 million to about 26 million, the White House said in a statement Wednesday urging Congress to move quickly.

House Ways and Means Committee member Rep. Richard Neal, D-Mass., said 84 percent of those exposed to the tax have annual incomes of less than $200,000.

The White House applauded the House for not imposing new taxes to offset the cost of the one-year fix, estimated at about $64 billion over 10 years.

Last year Congress didn't clear the AMT bill until late December as a result of a dispute between House Democrats, who wanted the tax relief paid for, and Senate Republicans who insisted there be no new taxes to match the tax relief. In the end, opponents of new taxes prevailed.

The issue of paying for tax relief clouds the other aspects of the tax package. The Senate bill pays for the $17 billion in renewable energy tax credits by limiting deductions available to the oil and natural gas industry. But the Senate only pays for about $25 billion of the $68 billion in business and individual tax breaks. The most expensive is the $19 billion cost in the Senate bill of renewing the research and development tax credit for two years.

The House energy relief and tax extension bill, which is expected to be debated Thursday, is fully paid for.

"While we applaud the Senate for acting yesterday and taking a step toward being fiscally responsible, their bill still falls short of the pay-as-you-go principle that House Democrats have insisted on," House Majority Leader Steny Hoyer, D-Md., said in a statement.

Neither chamber would pay for the $8 billion in disaster relief. The Senate bill targets much of that relief to areas in the Midwest hit by natural disasters this summer and Texas and Louisiana counties damaged by Hurricane Ike. The House bill distributes the aid more generally.

That angered the top Republican on the Senate Finance Committee, Sen. Charles Grassley, whose state of Iowa was devastated by storms this summer. "The House leaders' disregard for Midwestern disaster victims is shameful. When New York was attacked and New Orleans was under water, we dropped everything to give tax relief for recovery," Grassley said.

Senate Majority Leader Harry Reid, D-Nev., pleaded with the House not to tinker with the Senate-passed package, warning that imposing so-called offsets would kill the bill because of Republican opposition in the Senate. "If the House doesn't pass this, the full responsibility of this not passing is theirs, not ours."

The energy legislation extends for eight years, through 2016, investment tax credits for the solar power industry and for homeowners who install solar and wind equipment.

Taxpayers may claim a credit of up to $7,500 for purchasing plug-in electric cars, and production credits are extended to wind and biomass facilities. There are incentives to use smart meters for more efficient home energy use.

The extensions of expired tax breaks include the R&D credit that businesses have come to rely on, relief for teachers paying school expenses out of their own pockets, and help for those paying state and local general sales taxes and higher education tuition.

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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