Democrats' tax bill moves toward vote in US Senate

WASHINGTON, June 14 (Reuters) - A Democratic plan to extend benefits for the jobless that would also more than double the tax rate for investment fund managers will likely get its first test on Wednesday in the U.S. Senate.

Majority Leader Harry Reid on Monday moved toward an initial vote on a $126 billion bill to extend unemployment insurance that ran out last month for hundreds of thousands of out-of-work Americans and renew a set of popular business tax breaks.

Under Senate rules, the vote on whether to limit debate on the legislation will likely occur Wednesday. Sixty votes are needed out of the 100-member Senate.

Complaints by fiscally conservative Democrats about the plan's price tag and opposition by some Democrats to the investment fund manager tax has stalled the proposal.

According to several lobbyists, the majority Democrats remain shy of the 60 votes necessary. They need to attract as least one Republican plus keep all of the 59 votes they generally hold in the chamber.

Over the next 10 years, the Senate proposal would increase direct spending by $126 billion and add $22 billion in funding to prevent a 21 percent payment cut to doctors in the Medicare program, the Congressional Budget Office estimated.

The total package adds about $80 billion to the deficit over that period, according to CBO.

The legislation's so-called carried interest tax proposal would require fund managers to pay the much higher ordinary income tax rate on a majority of their income from managing investors' money.

The Senate version would tax 65 percent of fund managers' income at the higher rate. A tougher House version would tax 75 percent at ordinary income rates.

Currently, they only pay a 15 percent capital gains tax rate on this income, while ordinary income is taxed at a maximum of 35 percent. The top tax rate is set to rise to 39.6 percent in 2011, the year this legislation would take effect.

Republicans have offered a stripped-down alternative that would extend unemployment insurance for 30 days, but excludes the controversial tax-raising provisions. It also excludes a provision extending tax-exempt Build America Bonds, created in the stimulus plan last year.

(Reporting by Kim Dixon; editing by Jackie Frank)