Courtesy of The National Women’s Law Center www.nwlc.org
Bill Closes Private Equity Tax Loophole to Pay for Changes
(Washington, D.C.) The U.S. House is expected to vote Friday on a bill that promotes tax fairness and fiscal responsibility by expanding eligibility for the refundable child tax credit, temporarily fixing the alternative minimum tax, and closing a tax loophole that allows wealthy private investment fund managers to pay taxes at lower rates than ordinary Americans, the National Women’s Law Center said today.
“This vote is an important test of Congress’s willingness to stand up to the special interests and for average Americans,” said Nancy Duff Campbell, Co-President of the National Women’s Law Center. “The bill helps millions of hard-working families. It closes egregious tax loopholes. And it protects our nation’s future by not adding to our already massive debt.”
The bill, The Temporary Tax Relief Act of 2007, provides a one-year fix to prevent 23 million middle-income and upper-middle income families from having to pay the Alternative Minimum Tax. It also would help 12 million children in low-income families by increasing eligibility for the refundable child tax credit. Under current law, a family earning less than $12,050 would not be eligible for the child tax credit next year. The bill lowers the eligibility threshold in 2008 to $8,500. For a single mother working fulltime in a minimum wage job, the bill would mean the difference between a child tax credit of just $35 and a credit of $568. In addition, the bill extends various expiring tax provisions, including deductions for state and local sales taxes, teachers’ classroom expenses and tuition payments.
Notably, the bill adheres to pay-as-you-go or “paygo” budget rules adopted by Congress earlier this year. Paygo requires that new mandatory spending and tax cuts be paid for with revenue increases or spending cuts. To pay for improvements to the AMT, the child tax credit, and other tax changes, the bill closes several tax loopholes, including one that allows private investment fund managers to pay taxes at lower rates than ordinary workers. The bill would treat compensation that fund managers receive in the form of carried interest (a percentage of profits) as ordinary income, rather than capital gains. Managers’ carried interest income would then be taxed the way other workers’ earnings are taxed: at rates of up to 35 percent, rather than no more than 15 percent, and would be subject to payroll taxes.
Private investment fund managers have mounted a vigorous lobbying campaign against changing the privileged tax treatment of carried interest, and prospects for the bill are uncertain, especially in the Senate.
“For the past few years, Congress has passed tax cuts that overwhelmingly benefit the wealthiest Americans, and left the rest of us to foot the bill. It’s time to advance tax fairness and promote fiscal responsibility,” Campbell said.
The National Women’s Law Center is a non-profit organization that has been working since 1972 to advance and protect women’s legal rights. The Center focuses on major policy areas of importance to women and their families including economic security, education, employment and health, with special attention given to the concerns of low-income women. For more information on the Center, visit: www.nwlc.org.
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H.R. 3970 :: The Temporary Tax Relief Act of 2007