U.S. Rep. Adam Smith today voted for H.R. 3996, the Temporary Tax Relief Act of 2007. The act will prevent 23 million middle class families from paying the Alternative Minimum Tax (AMT) this April. To pay for this tax cut, the bill corrects a tax inequity by closing loopholes for investment fund managers.
“The bill we passed in the House today will prevent more than 43,000 people in Washington state from paying the Alternative Minimum Tax this April. And it does so without adding a dime to our deficit – a major break from the previous Congress. Democrats are dedicated to preventing this tax increase on middle class families and this bill does so in a fiscally responsible way,” Smith said.
The Alternative Minimum Tax was originally enacted to ensure the very wealthy are not able to dodge paying their fair share of taxes. However, because the income level triggering the AMT on a tax return does not rise as inflation rises, the tax now threatens middle class workers like teachers and firefighters. The bill offered today provides a temporary fix to prevent more than 23 million families from being inappropriately required to pay an increased tax rate.
To pay for the temporary fix for the AMT, the bill closes a loophole for investment fund managers who receive “carried interest” as a form of income. Currently, they pay a 15 percent capital gains tax rate on payment for services rather than a 35 percent income tax rate as other corporate professionals do for similar income from similar jobs. The bill ends this inappropriate tax inequity for very high incomes in order to prevent unfair taxation of middle class families.
The bill also includes a $9 billion extension of the research and development (R&D) tax credit. R&D tax credits provide companies with incentives to invest in new products and ideas that promote our competitiveness in the global marketplace and energize our economy. These incentives are part of the House Democrats’ Innovation Agenda, which Smith and the New Democrats helped craft. The bill extends the research credit for one year.
Other helpful provisions in this bill include:
- Property tax relief for 30 million homeowners
- Expansion of the child tax credit to cover 12 million children
- State and local sales tax reduction for 11 million families
- College tuition deduction expanded for 4.5 million families
- Classroom expenses deductions for 3.4 million teachers
- Tax relief under the Earned Income Tax Credit for combat troops
- The Temporary Tax Relief Act is fully paid for and will not add to the deficit.