(Washington D.C.)- The U.S. House of Representatives is expected to vote tomorrow on a fiscally responsible tax package to protect more than 23 million families from a tax increase under the alternative minimum tax (AMT).  H.R. 3996, the Temporary Tax Relief Act of 2007, would ensure that no additional taxpayers pay the AMT this year, while also extending important tax credits and deductions set to expire at the end of 2007. 

“This legislation stands up for middle class tax relief and tax equity without adding to the deficit and with no new borrowing,” said Rep. Sander Levin, a senior member of the tax-writing Ways & Means Committee.  “If enacted, 23 million families will be shielded from the AMT, and millions of others will benefit from the child tax deduction, property tax relief and college tuition assistance.”

H.R. 3996 would:

• Protect 23 million middle-class families from being hit by the Alternative Minimum Tax
• Provide 30 million homeowners with property tax relief
• Help 12 million children by expanding the child tax credit
• Help 4.5 million families better afford college with the tuition deduction
• Save 3.4 million teachers money with a deduction for classroom expenses
• Provide thousands of American troops in combat with tax relief under the Earned Income Tax Credit.

Other provisions, based on legislation sponsored by Rep. Levin, would extend the Research and Development Tax Credit to promote innovation and create high paying jobs, the deduction on mortgage insurance premiums (which will especially help homeowners struggling as a result of the current housing crisis) and the enhanced deduction for businesses on food inventory donated to food banks.

The tax relief provided in H.R. 3996 would be delivered in a fiscally responsible manner.  The legislation is fully offset and will not add to the federal deficit or require new borrowing. 

“We must provide AMT relief for middle class families, but it would be completely irresponsible to provide that relief without paying for it,” said Levin.  “For the last six years Congress has said ‘we don’t have to pay for tax cuts,’ leading to a $6 trillion increase in the national debt.  It is critical that we provide this tax relief, but also that we do so in a fiscally responsible manner.”

The middle-class tax relief contained in H.R. 3996 is paid for in part with a provision authored by Rep. Levin to close a loophole in the tax code allowing investment fund managers to avoid paying income tax on “carried interest” compensation.  In exchange for managing their investors’ assets, fund managers often receive a portion of the fund’s profits, or carried interest, usually 20 percent.  Currently, fund managers are paying the much lower capital gains rate on this compensation rather than ordinary income tax rates even though carried interest is money earned on a service provided rather than money earned on fund managers’ personal investments.  Levin’s provision closes the loophole that allows this practice and clarifies that carried interest is income compensation for services rather than investment income and is subject to ordinary income tax rates.

“Congress must ensure that our tax code is fair,” said Levin.  “We have to be sure that the lower capital gains tax rate is not being inappropriately substituted for the tax rate on wages and earnings.  Investment fund employees should not pay a lower rate of tax on their compensation for services than other Americans.  These investment managers are being paid to provide a service to their limited partners, and fairness requires they be taxed at the rates applicable to service income just as any other American worker.”
 

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