Of course the Senate couldn't help sticking fingers in the tax extenders pie.
Senate Finance Committee Chairman Max Baucus (D-Mont.) this afternoon unveiled a revised American Jobs and Closing Tax
Loopholes Act of 2010 that changes the House's carried interest provisions, as well as tweaks offsets to cover the bill's now-changed costs.
That means this tax legislative recipe -- which many already find unpalatable (I'm talking about Joe Kristan's take on the S Corp tax changes) -- will have to go back into the House oven once it clears the Senate.
Majority Leader Harry Reid (D-Nev.) hopes to get this latest version of the tax extenders bill to the Senate floor for a vote next week. How soon House and Senate conferees might work out differences is anybody's guess.
While the senior legislative body goes through the Kabuki that is part of getting the bill to a final vote, we have a chance to look at what's different.
Ch-ch-changes: The biggest issue was the provision changing payment of some investment managers. Currently, they received what is known as carried interest, which is taxed at the lower capital gains rate.
The House version of this tax bill called for 50 percent of carried interest to be treated as ordinary income and 50 percent to receive capital gain treatment for 2011 and 2012. On Jan. 1, 2013, that ratio would shift to 75 percent ordinary income and 25 percent capital gain taxation.The Senate bill keeps the 50-50 split between ordinary and capital income treatment for carried interests in 2011 and 2012. But with the 2013 taxable year and beyond, the ratio would be taxed as 65 percent ordinary income and 35 percent capital gain.
The Senate bill also provides for a 55-45 split beginning in 2013 between ordinary and capital gain treatment for carried interest that is derived from the sale or exchange of an asset held at least seven years. The House has no such provision.
Staying the same: The Senate Finance Committee didn't touch the House's tightening of foreign tax credit
Neither did it alter the House provision that would subject some S-corporation income to employment taxes. (Again, sorry Joe.)
And, like the House bill, the Senate measure would retroactively extend, through 2010 in most cases, more than 50 business and individual tax incentives that expired at the end of last year.
At the risk of being repetitious, the individual tax breaks include the itemized
deduction for state and local sales taxes, the additional
standard deduction for state and local real property taxes, the
above-the-line deduction for qualified tuition and fees, some home energy improvement credits and the rollover of certain IRA distributions to a charity.
On the business side, extended tax breaks include the research and experimentation tax credit, the New Markets Tax Credit and 15-year straight-line cost recovery for qualified leasehold improvements.
Add-ons: And, of course, there are the extended tax breaks that have been on the books for ages, but in the last few years have finally caught the eye of deficit hawks. These include breaks for NASCAR, biodiesel fuel, rum, the film and television industries and the like.
I'm not saying these tax breaks aren't silly sounding and probably should be more fully, and openly, debated so we get a full idea of why they're in there.
But I am just saying that Congress, for the most part, is a creature of habit and it's been passing these add-on tax measures for years. Lawmakers would like to do just that this time, too, and move on.
Again, that's not necessarily good. And it's our job as taxpayers and voters to convince lawmakers that they need to develop better budgetary habits.
- House passes extenders
- Carried interest slows extenders vote
- Tax extenders vote on Tuesday?
- Agreement reached on tax extenders
- Ways to pay for extenders grows
- Extenders outlook from W&M chair
- Bank tax to fund extenders?
- House OKs extending tax breaks
- Congressional tax wrap-up
- Tax break extenders on tap
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