TAX NEWS - June 2010
Senate Democrats push jobs tax compromise
Senate Democrats offer new tax, jobless aid plan
Democrats had hope the changes to the legislation, which also would increase taxes on investment fund managers, would attract some Republicans support, but Senate aides said that appears doubtful. Senate Majority Leader Harry Reid is pushing for a vote on the legislation by the end of the week.
Democratic leaders have been struggling all week to come up with a compromise that could win the support of their caucus as well as at least one Republican to get the 60 votes needed to advance the bill in the 100-member Senate.
"To build consensus, we've made multiple changes to focus the bill and this amendment further cuts spending," Senate Finance Committee Chairman Max Baucus said in a statement. "This amendment works to bring relief to American families and revitalize our economy."
But concerns over the bill's impact on the $1.4 trillion deficit continues to worry a number of lawmakers.
"It is my understanding that its $100 billion right now and $33 billion is not paid for so it's a problem," said Senator Ben Nelson, a centrist Democrat.
An earlier version of the bill, which would have added $55 billion to the deficit over 10 years, stalled last week. A procedural vote on the latest compromise could come late Thursday or early Friday.
The deficit and and $13 trillion debt are becoming major issues in the run-up to the November congressional elections in which Republicans hope to regain control of Congress. But White House economic officials have said moving to trim the deficit too quickly could shatter the fragile economic recovery.
The latest compromise raises the current oil spill liability fund tax to 49 cents per barrel from 8 cents. The new proposal also clarifies the application of the proposed new tax tax on investment fund managers "carried interest."
The bill extends unemployment benefits through November for hundreds of thousands of jobless workers whose benefits have run out. It also extends a set of popular business tax breaks.
In an effort to trim the cost, the new version pares down proposed Medicaid aid to states struggling to balance their budgets. States are pushing Congress to extend beyond the December expiration date the extra funds for the Medicaid healthcare program for the poor that were included in the stimulus plan passed last year. The program takes up an average 20 percent of state budgets.
Time is running out for lawmakers. Most states begin their fiscal year next week, and many banked on an extension of the Medicaid boost when drafting their budgets.
Last year's economic stimulus plan raised federal payments to states by 6.2 percent, with extra money for those with especially high unemployment. States are seeking a six month extension, which would have cost about $24 billion. The new Senate proposal would continue the aid through June 2011 but gradually lower the amount, reducing the bill's cost by about about $8 billion.
The extra Medicaid funding would decline to 3.2 percent in the first three months of 2011 and to 1.2 percent through June. A draft floated on Tuesday had a phase-down to 5.3 percent and then 3.2 percent.
The bill would raise taxes on investment fund managers, who now pay the low 15 percent capital gains rate on their earnings. The bill would require them to pay normal income tax rates, the top rate is currently 35 percent, on much of their earnings. The latest compromise would require investment fund managers to pay higher normal tax rates on 75 percent of income. For assets held longer than five years, they would pay higher rates on 50 percent of their income.
The bill also includes some spending rescissions, reductions in food stamp benefits and reallocate some unspent economic stimulus money to pay for the legislation.
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