TAX NEWS - June 2010

US Senate tax bill revised amid deficit concerns

U.S. Senate Finance Committee Chairman Max Baucus on Wednesday offered a revised proposal to extend jobless benefits that he said would also soften a provision raising taxes on investment fund managers.

Baucus offered the new version after the Senate rejected a bill that would have added nearly $80 billion to the deficit over 10 years. Baucus said his latest proposal was smaller and mostly paid for to address concerns lawmakers have about the $1.4 trillion budget deficit.

The new proposal postpones a 21 percent pay cut for physicians treating elderly Medicare patients, but for a shorter time than the earlier proposal. It also removes a $25 unemployment insurance pay increase that had been included in the economic stimulus plan enacted last year.

In the midst of the devastating oil spill in the Gulf of Mexico, the proposal would also raise the oil spill liability trust fund tax to 49 cents a barrel from 8 cents a barrel.

The new investment fund managers's tax, called carried interest, would tax 75 percent of investment fund managers income at ordinary tax rates, with an exception for assets held at least 5 years, of which only 50 percent would be taxed at ordinary income rates, according to committee documents.

The original Senate bill's carried interest proposal would have taxed 65 percent of investment fund managers' earnings at higher normal income tax rates. Currently investment fund managers enjoy a lower 15 percent capital gains tax rate on their earnings from managing investors' money.

The new carried interest language reverts to a higher percentage of income taxed favored by the House, but gives a bigger break to those holding assets for longer periods, which would primarily help venture capital.

The bill also makes changes in the tax treatment for some small businesses to address concerns of some moderate Republicans.