UPDATE 3-US Senate considers revised tax bill

* Senate considers scaled back tax, jobs proposal

* New plan softens tax increase for fund managers

* Oil spill liability tax raised by 49 cents a barrel

* Includes settlement extension for homebuyer tax credit (Recasts with new proposal)

By Donna Smith

WASHINGTON, June 16 (Reuters) - U.S. Senate Democrats on Wednesday offered a scaled-back jobless benefit and business tax break plan that also softens a new tax on investment fund managers after the Senate rejected a larger, costlier bill.

Senate Finance Committee Chairman Max Baucus said the proposal was smaller than the earlier rejected version. He said more than half of the bill was paid for mostly by other tax increases including a provision that would raise taxes on 75 percent of earnings by investment fund managers on sales of assets held less than five years.

"It is smaller, there are fewer dollars involved here and it is more paid for," Baucus told the Senate as he introduced the revised measure. As a result the plan will not add as much to the deficit as the earlier version which would have added about $80 billion in red ink over 10 years.

Baucus said the revised measure, which extends popular business tax breaks, would "provide a path forward" on the legislation. Senate Majority Leader Harry Reid was expected to push for a vote on the new bill this week.

The revised bill maintains an extension of higher Medicaid payments for cash-strapped states. But it postpones a 21 percent pay cut for physicians treating elderly Medicare patients, but for a shorter time than the earlier proposal.

The so-called Medicare "doc fix" would go into effect for six months instead of 19 months as originally proposed. The change reduces the bill's cost by more than $16 billion over 10 years, but it is unlikely Congress will ever allow that Medicare pay cut to go into effect. Doctors are seeking a permanent fix to the pay rate.

FUND MANAGER TAX

The new proposal also removes a $25 a week unemployment insurance benefit increase that had been part of the economic stimulus plan enacted last year. Finance Committee documents said the change saves $5.8 billion over 10 years.

In the midst of the devastating oil spill in the Gulf of Mexico, the proposal would also raise the oil spill liability trust fund tax to 49 cents a barrel from 8 cents a barrel. The earlier Senate version would have raised the tax to 41 cents a barrel.

The new investment fund managers's tax, called carried interest, would tax 75 percent of investment fund managers income at ordinary tax rates, with an exception for assets held at least 5 years, of which only 50 percent would be taxed at ordinary income rates, according to committee documents.

The new proposal also eases the tax's impact on the sale of partnership shares.

The original Senate bill's carried interest proposal would have taxed 65 percent of investment fund managers' earnings at higher normal income tax rates. Currently investment fund managers enjoy a lower 15 percent capital gains tax rate on their earnings from managing investors' money.

The new carried interest language brings the bill more in line with a bill passed by the House of Representatives, which called for 75 percent of earnings to be taxed at higher normal income tax rates.

The new bill also revised proposed tax changes for some small businesses in an effort to win support from some moderate Republicans.

The revised bill also includes an amendment approved earlier by the Senate that would give home buyers more time to settle on their contracts signed before April 30, and still take advantage of the popular homebuyers tax credit.

The new bill also maintains an extension of Build America Bonds, that are popular with Democrats and investors. (Reporting by Kim Dixon and Donna Smith; Editing by Sandra Maler and Cynthia Osterman)