TAX NEWS - June 2010

US Tax: Senate Jobs and Tax Debate Continues

Senate Democrats continue to work to try and pass a tax and benefits bill with a price tag of about $140 billion.  The most recent version of the bill (HR 4213) was revealed on Tuesday, but doesn't have the backing of any moderate Republicans.  Republicans cite the estimated $78.7 billion hit the bill would have on the federal deficit as the reason for their lack of support — the deficit is already predicted to average $1 trillion a year.

The price of the legislation may be even higher — Senator Bob Casey (D-PA) is trying to add back into the bill $7 billion in health insurance subsidies for laid-off workers.  Supporters of this measure say it is necessary because about ¾ of an average unemployment insurance check is taken up by health costs.

Republicans don't want tax increases on investment fund managers, small businesses organized as S corporations that would now pay self-employment taxes and on the international activities of US multinationals included in the legislation.  Republicans also argue that the bill calls for revenue increases that add up to $18.5 billion more than what is needed to pay for the tax breaks the bill would offer, meaning that the extra money is going towards additional spending.

For the most part, the bill in the Senate is very similar to the one that passed the House.  It would bring back and extend expanded unemployment benefits through November 30, reauthorize programs that expired over the Memorial Day recess, reinstate tax breaks that expired at the end of 2009 and provide funding for things such as legal settlements and agricultural disaster assistance.

The Senate bill would also raise the excise tax on oil, which funds the Oil Spill Liability Trust Fund.  The House bill raises the tax to 34 cents while the Senate version would raise it to 41 cents.  The tax is currently 8 cents per barrel but the recent oil spill highlighted the need to raise the tax to beef up the trust fund.  While the money raised from the tax would go into the trust fund, it is also being considered an offset to the tax cuts and spending in the bill.  Like the House version, the Senate amendment would raise the cap on claims from the trust fund from $1 billion per incident to $5 billion.  Debate on the bill is expected to continue until next week.