TAX NEWS - June 2010
U.S. Tax: Senate plan for oil company tax has sparks flying
The bill contains many long-pending provisions, including the renewal of dozens of popular tax breaks for individuals and businesses.
Many elements of the bill, like the tax cuts and further unemployment benefits for people out of a job for more than six months, enjoy broad support. But Republicans generally oppose the measure's nearly $60 billion in tax increases.
Even with those levies — on investment fund managers, oil companies, and some international businesses, among others — the measure would add about $80 billion to the deficit over the next decade, congressional analysts said.
It closely resembles a bill the House passed last month, with a handful of exceptions.
Majority Leader Harry Reid, Democrat of Nevada, moved to restore $24 billion in aid to cash-strapped states to help them fund Medicaid next year. Deficit concerns prompted House leaders to scrap a companion plan last month, generating criticism from governors and labor unions.
Massachusetts is counting on about $600 million in additional Medicaid reimbursements.
The other change would raise the tax on oil produced offshore to 41 cents per barrel, from 8 cents. That's 7 cents higher than what the House backed last month. The move to increase the tax would raise $15 billion over the coming decade as Congress seeks to shore up the fund after the Gulf of Mexico spill.
But it's also being used to ease a tax increase passed by the House on investment fund managers and to help pay for other tax cuts. Typically, fund managers get a fee to manage funds or assets. They also get a share of the profits earned for investors above a certain level.
Those shares of profits, called carried interest, are taxed as capital gains, with a top rate of 15 percent. The House bill would tax 75 percent of the fees as regular income, with a top tax rate of 35 percent, but set to rise to 39.6 percent in 2011.
The Senate proposal would tax half the shares of profits as regular income in 2011 and 2012. Beginning in 2013, the portion taxed as regular income would rise to 65 percent.
In a move to lessen the bite on venture capitalists, the Senate bill would impose regular income taxes on only 55 percent of profits that are the result of sales of assets held for seven or more years. The Senate has long resisted moves by the House to tax hedge fund managers and others at higher rates.
Using the increase in oil cleanup fees to pay for other costs in the bill drew the ire of Senate Republican Leader Mitch McConnell. "I think the American people think the oil cleanup trust fund ought to be used to clean up oil spills,'' he said.
The bill also contains a $1 billion summer jobs initiative aimed at employing 14- to 24-year-olds, and $23 billion to help doctors, who would otherwise be hit by a 21 percent cut in Medicare reimbursements.