Factbox: Democrats’ jobs and tax bill hits fund managers

WASHINGTON (BestGrowthStock) – Senate Democrats on Tuesday introduced their version of wide-ranging legislation that would renew expiring unemployment benefits, boost taxes on investment fund managers, and extend business and individual tax breaks.

The bill complements one passed in the House of Representatives last month, which would authorize about $80 billion in new spending and add $31 billion to the deficit.

The cost of the Senate version has not been estimated yet though it is likely to cost more as it includes more spending.

The bills extend unemployment benefits that expired at the end of last month for hundreds of thousands of Americans, tighten tax rules for multinational companies and renew a set of popular business tax breaks that expired last year.

Below is a summary of the key provisions in each version. All costs are estimated over a 10-year time frame.

INVESTMENT FUND MANAGER TAXES

The tax would hit the typical 20 percent share of profits that fund managers reap for managing money, known as carried interest. Fund managers, who can earn millions of dollars in a good year, pay a long-term capital gains tax rate of only 15 percent on their share of profits.

The House bill proposes to treat 75 percent of those profits as ordinary income, a 35 percent tax rate for the highest earners. Until 2013, 50 percent of the profits will be treated as ordinary income.

The Senate version would treat 65 percent of these profits as ordinary income by 2013. Starting in 2011, the bill would treat 50 percent of profits as ordinary income. For investments held seven years or longer, it would tax 55 percent as ordinary income starting in 2013.

The tax change would affect private-equity, venture-capital, real-estate and hedge funds, and has passed the House three times.

Both bills slap a 40 percent penalty on those caught attempting to skirt the taxes.

Revenue raised: House bill raises $18 billion; Senate version raises $14.5 billion.

UNEMPLOYMENT BENEFIT EXTENSIONS

A cornerstone of the bills is an extension of unemployment benefits. Both House and Senate versions allow those benefits to run until November 2010.

Extension of health benefits for the jobless was cut from both packages to win support among fiscally conservative Democrats.

Total cost: Both versions cost about $40 billion.

SUMMER JOBS

Both bills would pay for over 300,000 summer jobs for people aged 14 to 24, who have some of the highest unemployment levels. Total cost: $1 billion.

MEDICARE DOCTORS’ PAY

Both House and Senate bills prevent a planned 21 percent cut in payments to doctors who treat patients on Medicare, the federal health insurance program for about 45 million elderly and disabled. The House passed this provision separately from their jobs package.

Known as the “doc fix,” the provision could also be a sweetener and the AARP, the influential seniors’ lobby group, is urging lawmakers to approve the package. But the projected cost of tens of billions of dollars has some conservative Democrats grousing.

The proposals extend the patch for 1-1/2 years.

Total cost: About $23 billion.

FOREIGN TAX PROVISIONS

Both versions tighten tax rules for multinational companies. The biggest change would prevent companies from keeping income offshore, while at the same time using foreign tax credits to cut their reported income in the United States.

Revenue raised: About $14 billion in both bills.

BUSINESS TAX BREAKS

The bills renew a set of popular tax breaks for business and individuals, the biggest being the research and development tax credit used by major Fortune 500 companies. Other benefits extended include a tax credit for the use of biodiesel and renewable diesel and accelerated depreciation for certain business improvements. Cost of House bill: $32 billion.

OIL COMPANIES, SPILL CLEANUP

The House bill would boost the amount oil companies pay into a trust fund that pays economic damages from oil spills, to 34 cents a barrel from the current 8 cents a barrel. The Senate bill boosts it to 41 cents per barrel.

Both bills would also raise the $1 billion per incident limit on certain claims against the federal Oil Spill Liability Trust Fund to $5 billion. The fund was authorized for use in the aftermath of the Exxon Valdez spill.

BUILD AMERICA BONDS

Both bills would extend the taxable Build America Bonds, created in the stimulus plan passed last year, for two years but lower the federal subsidy from 35 percent to 30 percent.

Some $102 billion of the bonds have been sold so far, financing infrastructure projects across the nation. Cost: $4 billion.

SERVICE PROFESSIONAL TAX LOOPHOLE CLOSED

Both versions contain a provision to close a loophole used by some professional services such as law firms to avoid paying Medicare and Social Security taxes by routing income through a corporation.

Revenue raised: $11 billion.

MEDICAID HELP FOR STATES

The Senate bill extends funding for states for the Medicare health program for the poor for six months. The measure was stripped from the House version to cut its cost.

More than half of all states are counting on the extra money in their budgets for fiscal 2011, which for most begins July 1, and the House has said it will consider passing the provision separately this summer.

Cost: $24 billion.

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(Editing by Eric Beech)

Factbox: Democrats’ jobs and tax bill hits fund managers