FACTBOX-U.S. tax, jobs bill targets fund managers
May 28 (Reuters) - Far-ranging legislation that passed the U.S. House of Representatives on Friday would renew expiring unemployment benefits, boost taxes on investment fund managers, and extend business and individual tax breaks.
The bill's total net cost, now at $31 billion, has been trimmed by Democrats several times to gain support from fiscally conservative Democrats.
(For a story on the bill, click on: [ID:nN28183688])
It would extend unemployment benefits that are set to expire at the end of the 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.
The legislation will have to wait until Congress returns on June 7 from a recess, as the Senate was not expected to approve the bill before then.
The House also passed a payment update for doctors in the Medicare program, another attempt to cut the bill's cost.
Below is a summary of the bill's key provisions. All cost estimates are preliminary and over a decade.
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 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 tax change would affect private-equity, venture-capital, real-estate and hedge funds, and has passed the House three times. It has yet to gain traction in the Senate.
The bill also slaps a 40 percent penalty on those caught attempting to skirt the taxes.
Total revenue raised: $18 billion.
UNEMPLOYMENT BENEFITS EXTENSIONS
A cornerstone of the bill is extension of unemployment benefits, set to expire at month's end. It keeps those benefits running until Nov. 30, after lawmakers face voters in midterm congressional elections.
With the unemployment rate at 9.9 percent, backers argue the extension is needed to keep millions out of poverty and point out that the money will be quickly circulated into the economy. But some moderate Democrats from relatively prosperous districts say Congress should examine the effectiveness of these programs rather than simply continue them.
Extension of health benefits for the jobless was cut from the package to win support among fiscally conservative Democrats.
Total cost: $41 billion over 10 years.
The bill would pay for over 300,000 summer jobs for people aged 14 to 24, who have some of the highest unemployment levels. Cost: $1 billion
MEDICARE DOCTORS PAY
A companion bill prevents a 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 provision was stripped from the original package to trim the total cost and will be voted on separately.
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 conservative Democrats grousing.
To gain backing of fiscal conservatives, Democrats limited the payment fix to last about 1-1/2 years compared with an initially proposed 3-1/2 years.
Total cost: $22 billion.
FOREIGN TAX PROVISIONS
The bill tightens 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.
Total revenue raised: $14 billion.
BUSINESS TAX BREAKS
The bill renews 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. Total cost: $32 billion
OIL COMPANIES, SPILL CLEANUP
The 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 bill 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 Mobil Corp Valdez spill.
Revenue raised: $11 billion
BUILD AMERICA BONDS
The bill 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.
A total of $102 billion of the bonds have been sold so far, financing infrastructure projects across the nation.
Cost: $4 billion
SERVICE PROFESSIONAL TAX LOOPHOLE CLOSED
This provision closes a loophole used by smaller businesses 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 measure was in earlier drafts of the bill but was dropped in the final hour as Democrats sought to cut the costs for fiscal hawks. The stimulus plan had boosted the amount the federal government pays to states for Medicaid, the healthcare program for the poor that takes up 20 percent of states' budgets on average, and given extra funds to states with high unemployment.
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
401(K) FEE DISCLOSURES
This provision requires mutual fund companies to provide greater disclosure of fees to consumers. The industry says the measure will boost costs. Required disclosures include allocation of revenue between administration and recordkeeping, investment management, and other services, and a plan fee comparison chart.
(Reporting by Kim Dixon, Andy Sullivan and Lisa Lambert in Washington, editing by Vicki Allen and Eric Beech)
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