The House approved a bill to extend many expiring and expired tax breaks through the end of the year, as well as extend unemployment insurance benefits through the end of November.
Lawmakers voted 215-204 mainly along party lines for the bill, which would also raise taxes on carried interest for private equity firm partners and hedge fund managers, as well as close loopholes related to foreign tax credits for multinational companies. The bill next goes to the Senate, which is expected to take it up after the holiday recess.
The bill would extend a variety of tax credits for individuals and businesses, including the research and development tax credit, and refundable alternative minimum tax credits for corporations making domestic investments. It would also extend the ability to take an itemized deduction for state and local general sales taxes in lieu of the itemized deduction permitted for state and local income taxes through the end of 2010.
Other extensions are for the New Markets Tax Credit, the designation of economically depressed areas as empowerment zones, and the active financing exemption from Subpart F of the Tax Code.
In addition, the bill would extend the Emergency Unemployment Compensation program through the end of November 2010, and eliminate the penalty for part-time employment in the program. A provision extending a 65 percent subsidy on COBRA health benefits for the unemployed has been eliminated to reduce the cost of the bill.
This is a jobs bill, said Ways and Means Committee Chairman Sander M. Levin, D-Mich., in a statement. It will create more jobs and help sustain the recent job creation and recovery we have seen in recent months. This bill spurs job creation through tax cuts and loan relief to small businesses, as well as bond provisions to fund infrastructure improvements in our cities and towns. This bill provides more than $26 billion in tax relief for families and incentives for businesses and infrastructure improvements to create jobs. We pay for these investments in families and businesses by closing loopholes that encourage companies to ship jobs overseas.
Other provisions would extend for one year the special 15-year cost recovery period for certain leasehold improvements, restaurant buildings and improvements, and retail improvements. Also extended for one year is a provision that would provide eligible small businesses with a tax credit for activated military reservists.
The bill would also extend for one year (through 2010) the $250 above-the-line tax deduction for teachers and other school professionals for expenses paid or incurred for books, supplies (other than non-athletic supplies for courses of instruction in health or physical education), computer equipment (including related software and service), other equipment, and supplementary materials used by the educator in the classroom.
In addition, the bill would extend for one year (through 2010) the additional standard deduction for state and local real property taxes.
In response to the BP oil spill in the Gulf of Mexico, the bill would increase the Oil Spill Liability Trust fund liability cap from $1 billion to $5 billion. The bill would also increase the amount that oil companies are required to pay into the fund to 34 cents per barrel.
The bill also includes provisions to provide up to 350,000 summer jobs for youths ages 14 to 24. In addition, the bill extends a Recovery Act small business lending program that eliminates the fees normally charged for loans through the SBA 7(a) and 504 loan programs and increases the government guarantees on 7(a) loans from 75 to 90 percent.
Another provision would prevent a 20 percent reduction in Medicare physician payment rates in June, by providing a 2.2 percent update to physician payment rates for the rest of this year and an additional 1 percent update for 2011. After 2011 rates would return to the current law levels, but physicians have been trying to get a more permanent fix to the Medicare reimbursement problem.
The bill also contains $4.6 billion to pay for settlement of both the Cobell and Pigford class action lawsuits. The Cobell settlement concerns the governments management and accounting for over 300,000 American Indians trust accounts, and the Pigford settlement ends a decades-old discrimination lawsuit brought by black farmers against the U.S. Department of Agriculture.
The bill would also extend for one year (through 2010) the business tax credit for employers of qualified employees that work and live on or near an Indian reservation. The amount of the credit is 20 percent of the excess of wages and health insurance costs paid to qualified employees (up to $20,000 per employee) in the current year over the amount paid in 1993. The bill would extend for one year (through 2010) the placed-in-service date for the special depreciation recovery period for qualified Indian reservation property.
To pay for the cost of the bill, the legislation would raise taxes on the carried interest of hedge fund managers, venture capitalists, private equity firm partners. and real estate investment partnerships. The bill would prevent investment fund managers from paying taxes at capital gains rates on investment management services income received as carried interest in an investment fund. To the extent that carried interest reflects a return on invested capital, the bill would continue to tax carried interest at capital gains tax rates. However, to the extent that carried interest does not reflect a return on invested capital, the bill would require investment fund managers to treat 75 percent of the remaining carried interest as ordinary income (50 percent for taxable years beginning before Jan. 1, 2013). The provision would be effective for taxable years ending on or after Jan. 1, 2011.
The bill would also provide rules to prevent the splitting of foreign tax credits from the foreign income on which those taxes were paid. The bill would implement a matching rule that would suspend the recognition of foreign tax credits until the related foreign income is taken into account for U.S. tax purposes. The bill would target abusive techniques and not affect timing differences that result from normal tax accounting differences between foreign and U.S. tax rules. The provision would apply to all split foreign taxes claimed by taxpayers after the date of introduction.
The bill also contains several other provisions that would close loopholes in the use of foreign tax credits, including repeal of the 80/20 rules.
Another provision would make it more difficult for service professionals to set up S corporations to avoid payment of Social Security and Medicare taxes on their self-employment income.
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