Mr. President, today Senator Smith and I are introducing the Active Duty Military Tax Relief Act of 2007. This legislation will help those who are valiantly serving their country and the families that they leave behind.

The best definition of patriotism is keeping faith with those who wear the uniform of our country. That means giving our troops the resources they need to keep them safe while they are protecting us. And it means supporting our troops at home as well as abroad.

Currently, there are over 132,000 military personnel serving in Iraq and more are on the way. There are approximately 22,100 U.S. service members in Afghanistan. Many of these men and women are reservists and have been called to activity duty, frequently for multiple tours. Often they own, or are employed, by a small business and their activation results in hardship for the business.

Small businesses with less than 100 employees employ about 18 percent of all reservists who hold civilian jobs. Most large businesses have the resources to provide supplemental income to reservist employees called up and to replace them with temporary employees. I applaud the businesses that have been able to pay supplemental income to their reservists, but it is not easy for small businesses to do the same.

Earlier today, the Small Business and Entrepreneurship Committee held a hearing on veterans’ small business issues. A majority of our veterans returning from Iraq and Afghanistan are Reserve and National Guard members—35 percent of whom are either self-employed or own or are employed by a small business.

We heard some disturbing statistics about the impact and unintended consequences the call-up of reservists is having on small businesses. According to a January 2007 survey conducted by Workforce Management, 54 percent of the businesses surveyed responded that they would not hire a citizen soldier if they knew that they could be called up for an indeterminate amount of time. I am concerned that long call-ups have made it hard for small businesses to be supportive of civilian soldiers.

The Active Duty Military Tax Relief Act of 2007 provides a tax credit to small businesses with fewer than 100 employees and the self-employed to help with the cost of paying the salary of their reservist employees when they are called to active duty. This legislation also provides an additional tax credit to help offset the cost of hiring temporary employees to fill vacancies left by the service members.

Many reservists who own their own business return from duty to find that their business is floundering. These tax credits will help reservists who own their own businesses to hire temporary employees for the duration of their tour as well as to assist small businesses deal with the impact of having an essential employee called up for active duty.

In addition to helping small businesses, the Active Duty Military Tax Relief of 2007 addresses concerns related to differential military pay, income tax withholding, and retirement plan participation. These provisions will make it easier for employers who would like to pay their employees supplemental income, above their military pay, and make pension contributions. Our legislation would make differential military pay subject to Federal income tax withholding. In addition, with respect to the retirement plan rules, the bill provides that a person receiving differential military pay would be treated as an employee of the employer making the payment and allows the differential military pay to be treated as compensation.

This bill also attempts to mitigate the financial strains placed on our military families while the family member is deployed. To help ease some of this burden, the Active Duty Military Tax Relief Act of 2007 would increase the standard deduction for active duty military personnel by $1,000 for 2007 and 2008. In addition, this legislation would make permanent the existing provision which allows taxpayers to include combat pay as earned income for purposes of the earned income tax credit (EITC). Without this provision some military families would no longer be eligible to receive the EITC because combat pay is currently not taxable.

Last Congress, Senator Smith and I introduced the Fallen Heroes Family Savings Act, which we have incorporated into the Active Duty Military Tax Relief Act. This provision provides tax relief for the death gratuity payment that is given to families that have lost a loved one in combat. This payment is currently $100,000.

Our current tax laws do not allow the recipients of this payment to use it to make contributions to tax-preferred saving accounts that help with saving for retirement, health care, or the costs of education. Our legislation would allow military death gratuities to be contributed to certain tax-preferred accounts. These contributions would be treated as qualified rollovers. The contribution limits of these accounts will not be applied to these contributions.

Our service men and women need to know that we are honoring their valor by taking care of those they leave behind. Helping ease the tax burden on the death gratuity will enable military families to save more for retirement, education, and health care by allowing them to put the payment in an account in which the earnings will accumulate tax-free.

These changes to our tax laws will help our military families with some of their financial burdens. It cannot repay the sacrifices they have made for us, but it is a small way we can support our troops and their families at home as well as abroad.

The National Military Family Association, the Reserve Officers Association, and The Military Coalition (a consortium of veterans and military organizations representing more than 5.5 million members plus their families and survivors) support this legislation.

I ask unanimous consent that the text of this legislation be printed in the Record.