The House has voted to approve a $78 billion bill that would provide a temporary fix to prevent the alternative minimum tax from spreading to about 23 million more taxpayers this coming tax season.
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In a 216-193 vote, the House passed H.R. 3996, the Temporary Tax Relief Act of 2007. Congress was under pressure to pass an AMT fix in time to allow the Internal Revenue Service to produce the necessary tax forms without causing delays in processing and refunds. However, in a sign of the controversy over the bill's provisions for compensating for the loss in revenue by raising taxes on some taxpayers and closing several loopholes, no Republicans voted for the bill and eight Democrats voted against it.
The bill would raise taxes on managers of hedge funds and private equity firms by approximately $50 billion over the next decade. Instead of paying the 15 percent carried-interest rate for partnerships, financial managers would be subject to a corporate income tax rate of up to 35 percent.
The bill was sponsored by Charles Rangel, D-N.Y., chairman of the House Ways and Means Committee.
It now goes to the Senate, where the carried-interest provisions face opposition from not only Republicans but also powerful Democrats such as Charles Schumer, D-N.Y., and John Kerry, D-Mass. President Bush has also threatened to veto the bill if it reaches his desk in its present form.
Other provisions of the bill include mortgage forgiveness debt relief, extension of the research and development tax credit and of the ability to deduct state and local sales taxes, expansion of the child tax credit, tuition deductions, and reimbursement for teachers for out-of-pocket expenses. The bill limits the ability of fund managers to defer income and taxes through offshore tax havens, and ends an Internal Revenue Services program for outsourcing tax collection to private companies. It also overturns an IRS ruling that subjects residents of the U.S. Virgin Islands to the increased threat of audits.