June 12,2007

Baucus-Grassley Bill Offers Tax Relief to America's Fighting Men and Women

Legislation extends, streamlines and strengthens provisions to aid U.S. troops

Washington, DC – U.S. Senators Max Baucus (D-Mont.) and Chuck Grassley (R-Iowa), Chairman
and Ranking Republican Member of the Senate Finance Committee, today led a dozen fellow
Senators in introducing legislation to provide significant tax cuts for American troops and their
families. The Defenders of Freedom Tax Relief Act helps members of the military when they
receive combat pay, save for retirement, or purchase their own homes. The bill also includes tax help for employers of military reservists and for members of the National Guard who provide assistance to employees who are called to active duty.

“I introduced this legislation out of deep respect for our nation’s military. This bill honors and
values the sacrifices that the men and women of the armed services make for our country every single day,”
Baucus said. “This legislation puts dollars in the pockets of soldiers and veterans, and gets rid of unnecessary tax restrictions for military families who have more important things to worry about than red tape. There are often no words to express our thanks, but it is my hope this bill will show our troops that we recognize their contributions to our freedom.”

Grassley said, “Military service makes taxes complicated and sometimes unfair. People
shouldn’t suffer a tax hit to serve our country. We need to make sure military men and women
have fair treatment under the tax code. It’s a no-brainer.”

The Senators’ bill includes more than $550 million in tax relief for veterans, soldiers and their
employers. Provisions in the legislation will:

- Make permanent a provision that allows soldiers to count their non-taxable combat pay
when figuring their eligibility for the earned income tax credit, a refundable federal income tax credit that puts cash in the hands of low-income working individuals and families.

- Allow all veterans—not just first-time homebuyers—to use qualified mortgage bonds to purchase their homes

- Cut taxes for small businesses when they continue paying some salary to members of the National Guard and Reserve who are called to duty

- Eliminates cumbersome rules for reporting of income when companies continue paying some salary to members of the National Guard and Reserve who are called to duty. This makes it easier for reservists to file their taxes and simpler for employers to keep contributing to those employees’ retirement plans.

- Allow the families of soldiers killed in the line of duty to contribute up to 100 percent of survivor benefits to a retirement savings account

- Allow active duty troops to withdraw money from retirement plans and give them two years to replace the funds without tax penalty

- Extend a provision that gives retired veterans more time to claim a tax refund on some types of disability benefit payments

- Make permanent a provision that gives intelligence service employees a longer period of time to meet residency requirements necessary to exclude profits from the sale of their home from capital gains tax, which is often necessary due to frequent deployment

- Give the IRS the authority to treat gifts of thanks from states to veterans—such as payments of excess state revenue—as nontaxable gifts

More details on the bill’s provisions and their costs can be found on the Finance Committee
website by clicking here. See the printer-friendly version for a short summary.

The bill is paid for with two offsets. The first makes certain that individuals who relinquish their
U.S. citizenship or long-term U.S. residency pay the same Federal taxes for appreciation of
assets, such as stocks or bonds, that they would pay if they sold them as U.S. citizens or
residents. The second extends a provision that allows the Social Security Administration to
share earnings information so that accurate amounts of pension, dependency and indemnity
compensation, hospice care, or unemployment compensation is paid to veterans and their

Additional sponsors of the bill include Senators Jay Rockefeller (D-W.Va.), Kent Conrad (DN.
D.), Jeff Bingaman (D-N.M.), Olympia Snowe (R-Maine), John Kerry (D-Mass.), Blanche
Lincoln (D-Ark.), Gordon Smith (R-Ore.), Chuck Schumer (D-N.Y.), Debbie Stabenow (DMich.),
Maria Cantwell (D-Wash.), Pat Roberts (R-Kan.), and Ken Salazar (D-Colo.). A number
of elements in the bill mirror or build on provisions proposed by members of the Finance
Committee, including Rockefeller, Kerry, Lincoln, and Smith. The Committee, which has jurisdiction over tax policy, will formally consider the Defenders of Freedom Tax Relief Act this

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