| Sponsor | Rep. Levin, Sander M. |
| Committee | Ways and Means |
| Date | May 26, 2010 (111th Congress, 2nd Session) |
| Staff Contact | John Gray |
The House amendments to the Senate amendment to H.R. 4213, the American Jobs and Closing Tax Loopholes Act of 2010, is scheduled to be considered on Friday, May 28, 2010, subject to a rule. Pursuant to the rule, there will be two separate votes on passage of the bill-one vote on the "doc fix" provision, and a separate vote on the remaining provisions.
H.R. 4213 would temporarily extend several expiring tax provisions through 2010, increase taxes on certain S corporations, permanently increase taxes on capital investment, and increase the payment into the Oil Spill Liability Trust Fund.
H.R. 4213 would also include the "doc fix" to prevent a scheduled cut in Medicare payments to physicians, subsidies to states for covering the costs of Medicaid (FMAP), an extension of unemployment benefits, COBRA premium subsidies, and Build America and Recovery Zone Bonds.
Update: This bill will be sliced up into two components. The first vote will be on the Medicare Sustainable Growth Rate and a second vote will be on the remaining provisions included in this bill. The original bill has been modified twice since it was introduced on May 20, 2010. Modifications to specific provisions are highlighted below:
The major revisions include reducing the funding period of the "doc fix" from three and a half years to 19 months, striking COBRA health care subsidies and FMAP, and reducing the extension of Unemployment benefits by one month, until November 2010. In addition, the carried interest provision would now be effective January 2011, rather than the date of the enacted legislation.
The bill would provide $30 billion in tax relief and $82 billion in permanent tax increases, for a net tax increase of $47.8 billion. Overall, the bill would have a net cost of $102 billion.
The specific provisions of the bill are outlined below.
TITLE I-Infrastructure Incentives
Extension of Build America Bonds: The bill expands Build America Bonds, which were created in the Democrats stimulus, and are used to subsidize the purchasing of bonds from state and local governments. The bill would provide a tax credit subsidy of 35 percent of the interest on these bonds in 2009 and 2010, 32 percent in 2011, and 30 percent in 2012. According to JCT, this provision would cost $4.042 billion over a ten year period.
o Possible Member Concern: The Build America Bonds program allows for the federal government to subsidize interest costs of issuing taxable debt from state and municipalities. However, these state and local governments have paid on average, 37 percent more to investment banks for underwriting Build America Bonds than the typically issued tax-exempt bonds. The bonds have created a windfall resulting in fees paid to big Wall Street banks exceeding $1 billion.
Exempt-Facility Bonds for Sewage and Water Supply Facilities: This legislation would exempt water and sewage facilities from a volume cap on the private activity bonds they may issue. Under current law, state agencies are subject to these state volume caps. The bill would also exclude tax-exempt bonds that furnish water and sewage facilities by Indian tribal governments. According to JCT, this provision would reduce revenues by $372 million over a ten year period.
Extension of Exemption from Alternative Minimum Tax Treatment for Certain Tax-Exempt Bonds: H.R. 4213 extends this exemption, created in the Democrats stimulus, of private activity bonds from the alternative minimum tax. According to JCT, this provision would reduce revenues by $224 million over a ten year period.
Extension and Additional Allocations of Recovery Zone Bond Authority: The bill would extend the Recovery Zone Bonds through 2011. Originally passed in the stimulus bill, these bonds are to be directed toward state and local infrastructure, job training, education, and economic development, and are allocated to states depending on their unemployment rate. This bill would adjust the allocation to ensure that localities receive a minimum amount in regard to their unemployment rate. According to JCT, this provision would cost $3.75 billion over a ten year period.
Allowance of New Market Tax Credit against Alternative Minimum Tax: Extends the new market tax credit for one year, permitting the NMTC to be claimed against the Alternative Minimum Tax. The credit is provided to businesses that make qualifying investments in community development entities. According to JCT, this provision would reduce revenues by $445 million over ten years.
Extension of Tax-Exempt Eligibility for Loans Guaranteed by Federal Home Loan Banks: The legislation would extend the support to municipalities that face increased costs from issuing tax-exempt municipal bonds. It allows the bonds to be guaranteed by the Federal home loan bank to finance projects at a lower cost. According the JCT, this provision would reduce revenues by $148 million over ten years.
Extension of Temporary Small Issuer Rules for Allocation of Tax-Exempt Interest by Financial Institutions: This provision extends the interest disallowance rule, which stipulates that bonds that are issued by a qualified small issuer are not accounted for in tax-exempt municipal bonds. The bill extends the tax-exempt obligation from $10 million to $30 that was instituted in the stimulus bill.
TITLE II-Extension of Expiring Provisions
Subtitle A-Energy
Alternative Motor Vehicle Credit for New Qualified Hybrid Motor Vehicles: Extends the motor vehicle credit for heavy hybrids-hybrids that are not passenger vehicles or light trucks-through 2010. According to JCT, this provision would reduce revenues by $8 million over ten years.
Incentives for Biodiesel and Renewable Diesel: Extends the $1 per gallon production tax credit for biodiesel and diesel fuel created from biomass, as well as the 10 cent per gallon credit for small agri-biodiesel producers through 2010. According to JCT, this provision would reduce revenues by $868 million over ten years
Credit for Electricity Produced at Certain Open-Loop Biomass Facilities: H.R. 4213 would extend the credit period the production tax credit from five year to six years for electricity produced at open-loop biomass facilities. During the last year of the six year period, the credit provided to these facilities is reduced by 20 percent. According to JCT, this provision would reduce revenues by $84 million over ten years.
Extension and Modification of Credit for Steel Industry Fuel: Extends the placed-in-service date by one year for the $2.83 per barrel-of-oil equivalent tax credit for steel industry fuel. Facilities that qualify for this credit may receive it for the first two years from the date it was placed into service. According to JCT, this provision would reduce revenues by $44 million over ten years
Credit for Producing Fuel from Coke or Coke Gas: This bill would extend by one year the $3.36 credit of per barrel-of-oil equivalent of coke or coke gas. According to JCT, this provision would reduce revenues by $21 million over ten years.
New Energy Efficient Home Credit: The legislation would extend for one year, the tax credit provided to manufacturers that construct energy-efficient homes. According to JCT, this provision would reduce revenues by $66 million over ten years.
Excise Tax Credits and Outlay Payments for Alternative Fuel and Alternative Fuel Mixtures: Extends through 2010 the $0.50 per gallon production tax credit for alternative liquid fuels derived from biomass, compressed or liquefied biogas, national gas and propane. The bill will not provide a tax credit for fuels derived from pulp or paper manufacturing. According to JCT, this provision would reduce revenues by $96 million over ten years
Special Rule to Implement FERC or State Electric Restructuring Policy: Extends through 2010, the present deferral of any gains from sales of transmission property by electric utilities to FERC-approved independent transmission companies.
Suspension of Limitation on Percentage Depletion for Oil and Gas from Marginal Wells: Extends for one year, the suspension on the taxable income limit for purposes of depleting a marginal oil or gas well. According to JCT, this provision would reduce by $103 million over ten years
Direct Payment of Energy Efficient Appliances Tax Credit: This bill would allow manufactures of energy-efficient appliances to elect to receive a direct payment in lieu of the energy-efficient appliance tax credit under section 45M. The payment would be equivalent to 85 percent of the tax credit. According to JCT, this provision would cost $138 million over ten years.
Modification of Standards for Windows, Doors, and Skylights: The bill would require that to claim the section 25C tax credit, taxpayers much meet the criteria established by the 2010 Energy Star Program requirements for residential windows, doors, and skylights. According to JCT, this provision would cost $145 million over ten years.
TITLE II-Extension of Expiring Provisions
Subtitle B-Individual Tax Relief
Deduction for Certain Expenses of Elementary and Secondary School Teachers: Extends an above-the-line tax deduction of up to $250 for elementary and secondary school teacher's expenses for classroom supplies through 2010. According to JCT, this provision would reduce revenues by $215 million over ten years.
Additional Standard Deduction for State and Local Real Property Taxes: Extends an extra standard deduction for taxpayers who don't qualify to itemize their tax deductions, but who do pay state or local real estate taxes through 2010. According to JCT, this provision would reduce revenues by $1.551 billion over ten years.
Deduction of State and Local Sales Taxes: Allows taxpayers to take an itemized deduction for State and local sales taxes instead of the itemized deduction for state and local income taxes for one year, through 2010. According to JCT, this provision would reduce by $1.8 billion over ten years
Contributions of Capital Gain Real Property Made for Conservation Purposes: Extends the increased contribution limits of real property for conservation purposes through 2010. The bill also extends the carryforward period for amounts in excess of these limits through 2010. According to JCT, this provision would reduce revenue by $190 million over ten years.
Above-the-Line Deduction for Qualified Tuition: Extends a deduction for qualified college tuition and related expenses for one year, through 2010. The tuition and fees deduction can reduce the amount of a taxpayer's income subject to tax by up to $4,000. According to JCT, this provision would reduce revenues by $1.501 billion over ten years.
o Revisions: Modifies the provision so the deduction is unavailable to a taxpayer for whom a credit for higher education would have provided a greater net reduction in tax liability, without regard to any disallowance or reduction in value of the credit as a result of the alternative minimum tax. The cost of this provision would now be $693 million.
Tax-Free Distribution from Individual Retirement Plans for Charitable Purposes: Extends a provision that allows individuals age 70 ½ or older to make tax free charitable contributions of up to $100,000 from an Individual Retirement Account (IRA) through 2010. According to JCT, this provision would reduce revenues by $627 million over ten years.
Look-Thru of Certain Regulated Investment Company Stock: Extends the so-called "look through" treatment of payments (dividends, interest, rents and royalties to determine gross estate of nonresidents. According to JCT, this provision would have no revenue impact over ten years
Election for Direct Payment of Low-Income Housing Credit: Extends a provision from the Democrats' "stimulus" bill that allows State housing agencies to receive low-income housing grants in lieu of tax credits through 2010. According to JCT, this provision would cost $4.457 billion over ten years.
TITLE II-Extension of Expiring Provisions
Subtitle C-Business Tax Relief
Research Credit: Extends the tax credit for certain business research and development expenditures for one year, through 2010. According to JCT, this provision would reduce revenues by $6.650 billion over ten years.
Indian Employment Tax Credit: Extends through 2010 a business tax credit of up to $20,000 for employers that employ qualified individuals that live and work on or near Indian reservations. According to JCT, this provision would reduce revenues by $49 million over ten years.
New Markets Tax Credit: Extends the new market tax credit for one year. The credit is provided to businesses that make qualifying investments in community development entities. According to JCT, this provision would reduce revenue by $1.347 billion over ten years.
Railroad Track Maintenance Credit: Extends the 50 percent tax credit for certain costs of maintaining railroad tracks through 2010. According to JCT, this provision would reduce revenue by $165 million over ten years.
Mine Rescue Team Training Credit: Extends the tax credit for mine rescue teams and a 50 percent bonus depreciation for advance mine safety equipment for one year, through 2010. According to JCT, this provision would reduce revenues by $7 billion over ten years.
Employer Wage Credit for Active Duty Members of the Armed Services: Extends a tax credit for eligible small businesses of activated military reservists equal to 20 percent of the sum of wage payments to reservists through 2010. According to JCT, this provision would reduce revenues by $4 million over ten years.
5-Year Depreciation for Farming Business: Extends through 2010 a provision that provides a five-year period for the cost of certain farm equipment to be recovered. According to JCT, this provision would reduce revenue by $798 billion over five years.
15-Year Straight-Line Cost Recovery for Qualified Leasehold Improvements, Restaurant Buildings, and Retail Improvements: Extends the special 15-year period for businesses to recover the costs of certain leasehold improvements, restaurant buildings and improvements, and retail improvements through 2010. According to JCT, this provision would reduce revenue by $4.851 billion over ten years.
7-Year Recovery Period for Motorsport Entertainment Complexes: Extends the special seven-year period for businesses to recover the costs for Motorsports Racing Track Facilities through 2010. According to JCT, this provision would reduce revenues by $38 million over ten years.
Accelerated Depreciation for Business Property on Indian Reservations: Extends the placed-in-service-date for qualified business property on an Indian reservation through 2010. Qualified Indian reservation property is property used predominantly in the active conduct of a trade or business within an Indian reservation and is not regularly used outside the reservation. According to JCT, this provision would reduce revenues by $123 million over ten years.
Enhanced Charitable Deduction for Contributions of Food Inventory: Extends a provision that allows businesses to claim an increased deduction for contributions of food through 2010. According to JCT, this provision would reduce revenue by $78 million over ten years
Enhanced Charitable Deductions for Contributions of Book to Public Schools: Extends a provision that allows businesses to claim an increased deduction for contributions of books to public schools through 2010. According to JCT, this provision would reduce revenue by $31 million over ten years.
Enhanced Charitable Deductions for Corporate Contributions of Computer Inventory for Educational Purposes: Extends a provision that allows businesses to claim an increased deduction for contributions of computer equipment and software to elementary, secondary, and post-secondary schools through 2010. According to JCT, this provision would reduce revenues by $195 million over ten years
Special Expensing Rules for Certain Film and Television Productions: Extends through 2010 a provision that allows film and television producers to expense the first $15 million of filming costs incurred in the U.S., and the first $20 million if the costs are incurred in an economically depressed area. According to JCT, this provision would reduce revenues by $46 million over ten years
Expensing of Environmental Remediation Costs: Extends a provision that allows taxpayer's to expense the environmental remediation costs of cleaning up hazardous sites known as "brownfields" through 2010. According to JCT, this provision would reduce revenue by $158 million over ten years.
Deduction Allowable with Respect to Income Attributable to Domestic Production Activities in Puerto Rico: Extends the allowance for production activities in Puerto Rico to qualify for the domestic production activities deduction through 2010. According to JCT, this provision would reduce revenue by $185 million over ten years.
Modification of Tax Treatment of Certain Payments to Controlling Exempt Organizations: Extends through 2010 special rules regarding the tax treatment of payments made to a tax-exempt organization by entities controlled by that organization. According to JCT, this provision would reduce revenue by $20 million over ten years.
Exclusion of Gain or Loss on Sale or Exchange of Certain Brownfield Sites from Unrelated Business Income: The bill would extend for one year a provision that excludes any gain or loss from the sale, exchange, or other disposition of a qualified "brownfield" property from unrelated business taxable income. According to JCT, this provision would reduce revenues by $54 million over ten years.
Timber REIT Modernization: Extends the special rules applying to real estate investment trusts that earn income from being engaged in a timber business. The rules are effective for the first taxable year of the REIT. According to JCT, this provision would reduce revenues by $7 million over ten years.
Treatment of Certain Dividends of Regulated Investment Companies: Extends a number of provisions that provide special tax treatment for foreign shareholders that invest in regulated investment companies (RICs). The bill would extend these rules for one year, through 2010. According to JCT, this provision would reduce revenue by $84 million over ten years.
Exceptions for Active Financing income: Extends the exceptions that allow financial services companies and manufacturers with financing arms to defer taxes on qualifying overseas income from for one year, through 2010. According to JCT, this provision would reduce revenues by $4 billion over ten years.
Look-Through Treatment of Payments Between Related Controlled Foreign Corps. Under Foreign Personal Holding Company Rules: Extends the so-called "look through" treatment of payments (dividends, interest, rents and royalties) between related controlled foreign corporations (CFCs). The CFC look-through rule provides that certain payments received by a CFC from related CFCs will not be treated as income. According to JCT, this provision would reduce revenues by $574 million over ten years.
Basis Adjustment to Stocks of S Corps Making Charitable Contributions of Property: Extends a rule that allows S-corporation shareholders to take their pro rata share of charitable deductions into account, even if those deductions would exceed their adjusted tax basis. The provision would be extended for one year, through 2010. According to JCT, this provision would reduce revenue by $39 million over ten years.
Empowerment Zone Tax Incentives: Extends tax incentives for taxpayers and businesses within economically depressed areas, known as Empowerment Zones, for one year, through 2010. According to JCT, this provision would reduce revenue by $304 million over ten years.
Tax Incentives for Investment in the District of Columbia: Extends tax incentives for taxpayers and businesses within economically depressed areas in the District of Columbia (D.C.), known as the District of Columbia Enterprise Zone, for one year, through 2010. In addition, the bill would extend the $5,000 D.C. first-time homebuyer tax credit for one year. According to JCT, this provision would reduce revenues by $85 billion over ten years.
Renewal Community Tax Incentives: Extends tax incentives for taxpayers and businesses within economically depressed areas, known as Renewal Communities, for one year, through 2010. According to JCT, this provision would reduce revenues by $621 million over ten years.
Temporary Increase in Limit on Cover over of Rum Excise Tax to Puerto Rico and the Virgin Islands: Extends the federal payment of $13.25 per gallon of rum produced to Puerto Rico and the U.S. Virgin Islands through 2010. The payment is used to cover a $13.50 excise tax placed on distilled spirits imported into the U.S. According to JCT, this provision would cost $262 million over ten years.
Payment to American Samoa in Lieu of Extension of Economic Development Credit: Extends the American Samoa economic development tax credit for one year, through 2010. The credit provides tax incentives to businesses operating in American Samoa to offset their U.S. tax liability on income earned in American Samoa. According to JCT, this provision would cost $36 million over ten years.
Temporarily Utilize Unused AMT Credits Determined by Domestic Investment: This bill would allow corporations to receive a refund of a portion of their AMT credits if they invest during 2010 in capital equipment for use in the U.S. According to JCT, this provision would reduce revenues by $2.337 billion over ten years.
Study of Extended Tax Expenditures: This legislation would direct the Joint Committee on Taxation to submit a report to the Committee on Ways and Means and the Committee on Finance on each tax expenditure extended by this act. According to JCT, this provision would have no revenue impact over ten years.
TITLE II-Extension of Expiring Provisions
Subtitle D-Relief Provisions
Waiver of Certain Mortgage Revenue Bond Requirements: Extends a provision that allows States to use revenue from tax-exempt mortgage bonds to provide loans to taxpayers that wish to acquire residences in federally-declared disaster areas through 2010. According to JCT, this provision would reduce revenue by $70 million over ten years.
Losses Attributable to Federally Declared Disasters: Extends a provision that allows taxpayers who have suffered a loss in a federally-declared disaster to claim deductions for casualty losses for one year, through 2010. The bill would allow taxpayers to calculate their loss deduction without regard to their income and maintains the $500 per loss threshold through 2010. According to JCT, this provision would reduce revenue by $728 million over ten years.
Special Depreciation Allowance for Qualified Disaster Property: Extends a provision that allows businesses that have suffered from a federally-declared disaster to claim a first-year, 50 percent depreciation deduction on new property investments made in the disaster area. This provision would be extended for one year, through 2010. According to JCT, this provision would reduce revenues by $1.457 billion over ten years.
Net Operating Losses Attributable to Federally Declared Disasters: Extends a provision that allows businesses affected by a disaster to carry back their losses for five years, reducing their tax liability in those past years. The bill would extend the provision for one year, through 2010. According to JCT, this provision would reduce revenues by $120 million over ten years.
Expensing of Qualified Disaster Expenses: Extends a provision that allows businesses that have been adversely affected by a federally-declared disaster to expense the cost of recovery, demolition, repair, clean-up, and environmental remediation expenses for one year, through 2010. According to JCT, this provision would reduce revenue by $31 million over ten years.
Special Depreciation Allowance for Non-Residential and Residential Real Property: Extends special depreciation allowances for certain real estate in the New York Liberty Zone for one year, through 2010. The bill would also extend the time for issuing New York Liberty Zone bonds by one year. The Job Creation and Worker Assistance Act of 2002 contained various tax incentives designed to stimulate the economy and aid recovery from the impact of the September 11, 2001, terrorist attacks, including these provisions for the area of lower Manhattan designated as the New York Liberty Zone. According to JCT, this provision would reduce revenue by $152 million over ten years.
Increase in Rehabilitation Credit: The bill would extend the increased rehabilitation tax credit for expenditures in the Gulf Opportunity Zone for one year, through 2010. According to JCT, this provision would reduce revenue by $7 million over ten years.
Work Opportunity Tax Credit Affected by Hurricane Katrina: Extends the work opportunity tax credit through August 28, 2010, for eligible employers hiring in the Hurricane Katrina core disaster area. According to JCT, this provision would reduce revenue by $43 million over ten years.
Extension of Low-Income Credit Rules for Buildings in Go Zones: Extends a provision in the Gulf Opportunity Zone Act of 2005 to provide low-income housing credits to the Gulf Opportunity Zone in an amount equal to the product of $18 multiplied by the portion of the state population. According to JCT, this provision would reduce revenues by $357 million over ten years.
TITLE III-Pension Provisions
Subtitle A-Pension Funding Relief
Extend Period for Single-Employer Defined Benefit Plans to Amortize Certain Shortfall Amortization Rates: The bill would permit single employer defined plan sponsors to elect an extended 9-year amortization period with interest only being paid in the first two years. The plan sponsor may also elect a 15-year amortization period. According to JCT, this provision would increase revenues by $1.309 billion over ten years.
Application of Extended Amortization Period to Plans Subject to Prior Law Funding Rules: Under the provision, a plan sponsor may elect to calculate its minimum required contribution without regard to the deficit reduction contribution rules for up to two years. The provision provides for an alternative rule, for one year, under which a plan may instead amortize funding liability under a 15-year payment schedule. The provision allows plan sponsors to elect relief for plan years beginning during the three-plan-year period from 2009 to 2011. The provision also amends the PPA by allowing certain charity plans to elect to be temporarily covered by prior law funding rules.
Ø Suspension of Certain Funding Level Limitations: The provision extends the Workers, Retiree, and Employer Recovery Act of 2008 relief for plan years beginning through 2011, allowing single employer defined benefit plans to use their funded percentage for the last plan year ending before September 30, 2009. The bill permits the payment of benefits in the form of a social security leveling payment, which would otherwise be a prohibited payment for an underfunded plan, for 2010 and 2011. In the case of plant shutdown benefits, present law also requires employers to waive any credit balances that arise from pre-funding in order to avoid funding based restrictions on the payment of the shutdown benefits. The provision temporarily permits employers to make a contribution to the plan in the amount of the shutdown benefits in lieu of waiving credit balances
Lookback for Credit Balance Rule: The provision allows an employer to use its credit balances for the period of 2009 to 2011 if the plan was at least 80 percent funded prior to the financial crisis.
Information Reporting: This bill modifies the reporting requirement for sponsor pension plans by requiring additional reporting if aggregate unfunded vested benefits of plans maintained by the sponsor exceed $75 million.
Rollover of Amount Received in Airline Carrier Bankruptcy: The provision permits qualified airline employees to rollover bankruptcy settlement amounts into a traditional IRA, and to restate a prior contribution of a settlement amount to a Roth IRA as a contribution to a traditional IRA. According to JCT, this provision would reduce revenues by $119 million over ten years.
Optional Use of 30-Year Amortization Periods: This provision would allow multiemployer pension plans to elect a 30-year amortization period for certain losses incurred in either or both of the first two years ending in June 30, 2008.
Optional Longer Recovery Periods for Multiemployer Plans: The provision extends Workers, Retiree, and Employer Recovery Act of 2008 so as to permit up to a 5-year extension of multiemployer pension plans that must improve their funding levels over 10-years (up to an additional 2 years for plans that elected WRERA relief).
Modification of Certain Amortization extensions Under Prior Law: This provision is used to determine if multiemployer plans have demonstrated funding improvement, and plans with extensions may treat the return on plan assets, from June 30, 2008 to October 31, 2008 as the interest rate used for charges and credits to the plan's funding standard account.
Alternative Default Schedule for Plans: This provision allows the plan trustees to elect to use as the default schedule the contribution schedule that has been approved by the bargaining parties and that covers at least 75 percent of the employees actively participating in the plan. This provision does not apply to plan years beginning after December 31, 2014.
Transition Rule for Certification of Plan Status: This provision provides transition rules with respect certifications of a plan's funding status for plans with certification due after the date of enactment.
TITLE III-Pension Provisions
Subtitle B-Fee Disclosure
Requirement to Provide Notice of Plan Fee Information to Plan Administrators: This provision would require the service provider that enters into a contract to provide services to an individual account plan a detailed description of the services which will be provided to the plan by the service provider, the amount of total expected revenue from such services, and how those revenues will be collected.
TITLE IV-Revenue Offsets
Subtitle A-Foreign Provisions
Rules to Prevent Splitting of Foreign Tax Credit from the Income to Which They Relate: This provision would implement a matching rule that suspends the recognition of foreign tax credits until the related foreign income is taken into account for taxing purposes in the U.S. This provision would apply to all split foreign taxes claimed by taxpayers after the date of introduction. According to JCT, this provision would increase revenues by $6.325 billion over ten years.
Denial of Foreign Tax Credit with Respect to Foreign Income Not Subject to U.S. Taxation by reason of Covered Asset Acquisition: This provision would prohibit taxpayers from claiming the foreign tax credit with regard to foreign income that is never subject to U.S. taxation because of a covered asset acquisition. The legislation would apply to related party transactions occurring after the date of introduction. According to JCT, this provision would increase revenues by $4.025 billion over ten years.
Separate Application of Foreign Tax Credit Limitation to Items Resourced Under Treaties: The legislation abides by the treaty commitment to treating income as a foreign source, but segregates the income so that it is not the basis for claiming foreign tax credits that have nothing to do with double taxation. The bill conforms the foreign tax credit treatment of taxpayers operating abroad through foreign branches and disregarded entities to the treatment already afforded to taxpayers operating through foreign corporations. According to JCT, this provision would increase revenues by $253 million over ten years.
Limitation on the Amount of Foreign Taxes Deemed Paid with Respect to Section 956 Inclusions: The bill would limit the amount of foreign tax credits that may be claimed on a deemed dividend under section 956 to the amount that would have been allowed with respect to an actual dividend. According to JCT, this provision would increase revenues by $1.010 billion over ten years.
Special Rule with Respect to Certain Redemptions by Foreign Subsidiaries: The bill would eliminate a tax planning technique that allows foreign-based multinationals (e.g. a foreign-based company that owns a U.S. company, and that U.S. company owns a foreign subsidiary) earnings to bypass the U.S. tax system. According to JCT, this provision would increase revenues by $255 million over ten years.
Modification of Affiliation Rule for Purposes of Rules Allocating Interest Expense: The bill prevents taxpayers from using certain techniques to minimize the amount of foreign source interest expense, which has the effect of boosting foreign source income - thus allowing taxpayer to utilize more foreign tax credits. According to JCT, this provision would increase revenues by $405 million over ten years.
Termination of Special Rules for Interest and Dividend Received from Persons Meeting the 80-percent Foreign Business Requirement: The bill terminates the "80/20" rule that had allowed a corporation with gross income of at least 80 percent from a foreign source income and attributable to foreign trade or business during a three-year period. Some corporations that meet specific requirements and are not abusing the "80/20" rule company rules may receive relief. According to JCT, this provision would increase revenues by $153 million over ten years
Source Rule for Income on Guarantees: The bill would stipulate that guarantees issues after the date of enactment will be sourced like interest; if paid by U.S. taxpayers to foreign persons - it will be subject to withholding. According to JCT, this provision would increase revenues by $2.025 billion over ten years
Extension of Statute of Limitations for Failure to Notify Secretary of Certain Foreign Transfers: The bill would make a technical correction to the Hiring Incentives to Restore Employment (HIRE). This provision would clarify the circumstances in which the statute of limitations period for corporations that fail to provide certain information on cross-border transactions or foreign assets. According to JCT, this provision would have no revenue impact over ten years.
TITLE IV-Revenue Offsets
Subtitle B-Personal Service Income Earned in Pass-Thru Entities
Carried Interest: The bill would prohibit investment fund managers from paying capital gains tax rates on investment management services income received as carried interest. Any carried interest that does not reflect a return on invested capital, the bill would require investment fund managers to treat 50 percent of the remaining carried interest as ordinary income in 2010 and 75 percent of their ordinary income beginning in 2013. According to JCT, this provision would increase revenues by $18.685 billion over ten years.
o Revision: Delays implementation of this provision until January 2011, rather than day of enactment.
o Possible Member Concerns: Some Members may be concerned that H.R. 4213 would include an $18.7 billion tax hike on investment partnerships at a time when unemployment stands at nearly 10 percent. Tax increases on investment could discourage the entrepreneurial risk-taking that is crucial to economic growth and job creation. Some Members may also believe that a permanent tax increase should not be used to offset temporary tax relief.
Employment Tax Treatment of Professional Service Businesses: The bill would prohibit certain service professionals that have been avoiding a varying amount of Social Security and Medicare taxes by routing their self-employment income through an S corporation. According to JCT, this provision would increase revenues by $11.249 billion over ten years.
o Possible Member Concerns: Some Members may be concerned that this provision would raise taxes on small businesses, and at time of high unemployment, this would be detrimental to the sector of the economy that is responsible for 70 percent of new jobs. In addition, members may also be concerned that this permanent tax increase would be to offset temporary extensions of tax relief.
TITLE IV-Revenue Offsets
Subtitle C-Corporate Provisions
Treatment of Securities of a Controlled Corporation Exchanged for Assets in Certain Reorganizations: The bill would require any distributions of debt securities from a subsidiary to a parent corporation in a tax-free spin-off transaction to be treated in the same manner as distributions of cash or other property. According to JCT, this provision would increase revenues by $255 million over ten years.
Taxation of Boot Received in Reorganization: The bill stipulates that any shareholder that receives property other than stock in connection with certain business reorganizations, and thus recognizes income that is limited to the amount of gain realized in the exchange, would now be repealed if the exchange has the effect of the distribution of a dividend. According to JCT, this provision would increase revenues by $510 million over ten years.
TITLE IV-Revenue Offsets
Subtitle D-Other Provisions
Modifications with Respect to Oil Spill Liability Trust Fund: The bill would increase and extend through 2020 the Oil Spill Liability Trust Fund tax per barrel on oil produced in or imported into the U.S. The bill raises the tax from 8 cents per barrel to 32 cents per barrel. In addition, this legislation would increase from $1 billion to $5 billion the per incident Oil Sill Trust Fund liability cap. Finally, the bill would also increase the $500 million cap on natural resource damage assessments and claims to $2.5 billion. According to JCT, this provision would increase revenues by $10.866 billion over ten years.
o Revision: Under the original bill, the per-barrel excise tax would have increased to 32 cents. This revision further increases the tax to 34 cents.
o Possible Member Concerns: Some members may be concerned that Congress may raise taxes on energy before investigations into the cause of the Gulf of Mexico spill are complete and the cause of the accident is known. Members may also be concerned that this increase in energy taxes will fund unrelated tax policy and social program spending. Additionally, raising the barrel tax on oil in the U.S. will raise gas prices for Americans during a recession. Higher gas prices hurt family budgets and kill jobs. Finally, Members may be concerned that the barrel tax should not be raised arbitrarily without a sound economic justification.
Furthermore, such an increase in the liability costs would effectively shut out small and independent U.S. producers in favor of large and foreign state-owned companies. According to Alliant Insurance Services, Inc., if the cap was raised, "only major oil companies and NOCs (National Oil Companies) will be financially strong enough to continue current exploration and development efforts." Smaller U.S. companies may face difficulty getting a bond for the higher amount, getting a line of credit for that amount, and may not be able to get insurance nor permits for offshore exploration. Independent U.S. producers account for 90 percent leases, 30 percent of oil production, and over 60 percent of natural gas in the Gulf of Mexico. If smaller American companies are effectively barred from operation, it would have an acute negative impact on U.S. job creation and generally impede American energy independence as new drilling would come to a virtual halt.
TITLE V-Unemployment, Health, and Other Assistance
Subtitle A-Unemployment Insurance and Other Assistance
Unemployment Insurance Benefits: Extends the nationalization of the extended benefit unemployment program through December 2010. The bill would extend 100 percent federal funding for the U.I. extended benefits program, as well as an additional $25 per week for U.I. recipients. Extended benefits last up to 20 weeks, meaning the total maximum duration of 100 percent federally funded extended benefits today is a record 73 weeks-up to 53 weeks under the "temporary" program and another 20 weeks under the "permanent" program, which is currently entirely federally funded. Thus unemployed workers can receive a total of 73 weeks of federal benefits, or 99 weeks (counting 26 weeks of State unemployment benefits) available nationwide. The expected cost of this provision would be $48.635 billion over ten years.
o Revision: The extension of unemployment compensation benefits under the bill is shortened by one month. The cost of this provision would now be $41.350 billion.
- Possible Member Concern: Some Members may echo the concerns of noted Harvard economist Martin Feldstein, who previously testified that extended unemployment would "create undesirable incentives for individuals to delay returning to work. That would lower earnings and total spending."
Extension of the Emergency Contingency Fund: The bill would extend the Emergency Contingency Fund, created in the stimulus bill, through 2010. This provision would provide additional subsidies to states to cover TANF programs, aid to needy families, and subsidized state employment programs. The expected cost of this provision would be $2.65 billion over ten years.
TITLE V-Unemployment, Health, and Other Assistance
Subtitle B-Health Provisions
Extension of Premium Assistance for COBRA Benefits: The bill would extend the stimulus- created program to provide 15 months of COBRA subsidies to employees who lose their jobs through May 2010. The length of the subsidy eligibility was expanded from nine to 15 months by H.R. 3326, on December 19, 2009. In addition, the bill would extend eligibility for the program for individuals terminated on or before December 31, 2010. The expected cost of this provision would be $8.9 billion over ten years.
o Revision: This provision has been stripped from the bill.
- Possible Member Concerns: Employers are permitted to charge former workers electing COBRA coverage the full cost of their group insurance premiums, plus a 2 percent fee to cover administrative costs. The "stimulus" (P.L. 111-5) provided a 65 percent premium subsidy to employers to cover the costs of individuals electing COBRA coverage for up to nine months, provided such election came as a result of the individual's involuntary termination from employment during the period from September 1, 2008 to December 31, 2009. Under the stimulus, subsidies continue for a maximum of nine months, but terminate once the individual becomes eligible for other employer-based coverage or Medicare. Subsidies begin to phase out for individuals with adjusted gross incomes over $125,000 and families with incomes over $250,000, phasing out completely at income levels of $145,000 and $290,000, respectively.
Some Members may view this further extension of health insurance subsidies as part of an attempt to circumvent the President's promise that his health "reform" bill will cost "only" $900 billion, and will not increase the deficit. If Democrats hope to extend provisions like the COBRA subsidies piecemeal through 2013 or beyond-when the major provisions of their "reform" bills will finally take effect-such efforts would cost several hundred billion dollars-yet the majority has made no attempt to offset the costs of such a federal spending binge.
Extension of Section 508 Reclassification: The bill would extend the hospital geographic reclassifications of the Medicare Modernization Act which are slated to expire September 2010. The expected cost of this provision would be $300 million over ten years.
Repeal of Delay of RUG-IV: The bill would repeal the delay of reimbursing nursing facilities under Medicare.
Limitations on Reasonable Cost Payments for Certain Clinical Diagnostic Laboratory Tests Furnished to Hospital Patients in Certain Rural Areas: The bill would repeal the reinstatement of cost-based payments for laboratory services at small hospitals.
Funding for Claims Reprocessing: The bill would provide funding for CMS to reprocess Medicare claims back to January 2010. The expected cost of this provision would be $175 million over ten years.
Extension of "Stimulus" Increase in FMAP: The bill would extend by six months, to June 2011, the federal Medicaid matching rate of 6.2 percent to all states. The expected cost of this provision would be $24.088 billion over ten years.
o Revision: This provision has been stripped from the bill.
Medicaid and CHIP Technical Corrections: The bill would make technical corrections regarding the exclusion from Medicare and CHIP based on income eligibility levels for children, measurement of payment error rates, coverage to children of state employees, and payment for electronic health records. The expected cost of this provision would be $300 million over ten years.
Addition of Inpatient Drug Discount Program to 340B: The bill would extend discounts required by drug manufacturers to hospitals and other entities that treat low-income and uninsured patients so the cost of the outpatient drugs does not exceed the Medicaid price for the same drug. The expected cost of this provision would be $35 million over ten years.
Inclusion of Orphan Drugs in Covered Outpatient Drugs with Respect to Children's Hospitals Under the 340B Drug Discount Program: The bill would provide children's hospitals with access to 340B drug discounts on orphan drugs. The expected cost of this provision would be $300 million over ten years.
Establishing a CMS-IRS Data match to Identify Fraudulent Providers: The bill would require CMS and IRS to exchange information for the purposes of fighting Medicare fraud.
Effective Date of Part B Special Enrollment Period for Disabled TRICARE Beneficiaries: The bill would clarify the date of the 12-month special enrollment period for disable Medicare beneficiaries who are also eligible for TRICARE. The expected cost of this provision would be $3 million over ten years.
Medicare Sustainable Growth Rate Reform: The bill prevents a 21 percent cut to the Medicare physician reimbursement rate and stipulates that physician reimbursement rates cannot be reduced through December 2013. The bill also provides certain preventative care services with an increase in reimbursement rates through 2013 as well. The expected cost of this provision would be $63.1 billion over ten years.
o Revision: The bill would provide funding for 19 months, through 2011. The cost of this provision would now be $22.9 billion.
TITLE VI-Other Provisions
Extension of National Flood Insurance: Extends the National Flood Insurance Program through 2010.
Allocation of Geothermal Receipts: The bill would reinstate all sales, bonuses, royalties, and rentals are deposited into the treasury under the Geothermal Steam Act of 1970. The expected cost of this provision would be $8 million over ten years.
Small Business Loan Guarantee Enhancement Extensions: The bill would extend the small business lending program, created in the stimulus, through December 2010.
Emergency Agricultural Disaster Assistance: The bill would provide assistance for 2009 agriculture losses for crops, including livestock, sugar, aquaculture, cottonseed, and poultry. The expected cost of this provision would be $1.479 billion over ten years.
Summer Employment for Youth: The bill will expand the Workforce Investment Boards created Democrats' stimulus bill to provide grants to states to be used for summer employment of youth. The expected cost of this provision would be $1 billion over ten years.
Housing Trust Fund: The bill would provide additional funding to the National Housing Trust Fund, which provides grants to states to provide for rental homes of low income households. The expected cost of this provision would be $1.065 billion over ten years.
Individual Indian and Black Farmers Discrimination lawsuits: The bill would provide funds for the government to settle the Cobell and Pigford class action lawsuits. The expected cost of this provision would be $4.6 billion over ten years.
Eligibility for Military Pay and Veterans' Disability Compensation: The bill would provide two years of concurrent receipts of both military retirement pay and VA military disability pay. The expected cost of this provision would be $686 million over ten years.
Extension 2009 Poverty Guidelines: The bill would prevent the negative consumer price index from lowering the official poverty guidelines in 2010. The legislation would continue the current short-term hold harmless provision through 2010. The expected cost of this provision would be $317 million over ten years.
State Court Improvement Program: The bill would extend through 2010, funding to courts to help improve foster care and adoption cases. The expected cost of this provision would be $20 million over ten years.
Extension and Flexibility for Surface Transportation Programs: The bill would make changes to the surface transportation programs extension included in the HIRE Act to distribute funding for highway programs amount state based on their FY09 share of funds, rather than the existing formula the distributes funds.
Modification of Wool Apparel Manufacturers Trust Fund: The bill would shift revenue generated from tariffs on other apparel products to fund the wool trust fund at the level authorized in 2004.
State Court Improvement Program: The bill would extend through 2010, funding to courts to help improve foster care and adoption cases. The expected cost of this provision would be $20 million over ten years.
H.R. 4213 was passed in the House on December 9, 2009, by a vote of 241 to 181. The bill was amended in the senate and passed on March 10, 2010 by a vote of 62 to 36.
Possible Member Concerns:
Increased Spending/Deficit:
Marketed as a "tax extenders" bill, the legislation is heavily weighted toward spending. For every $1 of tax relief this bill provides, it spends out more than $3.40 of hard-earned taxpayer money. The total
Finally, with a deficit that could surpass $1.5 trillion this year-which would be the largest on record-we cannot afford to add the $54 billion this bill is expected to contribute to the deficit.
Increased Taxes:
Although the bill does extend some useful tax relief, it actually increases taxes by much more; on investment partnerships and small businesses, which include small oil companies, in the midst of a recession. The overall tax increase is $77.8 billion dollars. This amount has been used to offset the $30 billion in extended tax relief, resulting in a net aggregate tax increase of $47.6 billion.
In addition, the bill provides accounting methods that would even make Enron proud. On the one hand the Democrats bill would quadruple the per-barrel excise tax that funds the Oil Spill Liability Trust Fund, in order to build up reserves to ensure that funds would be available to pay for damages caused by oil spills. On the other hand, they take the increase in revenue from that excise tax and count it against deficit reduction. You can either apply that revenue toward the deficit or the Oil Spill Liability Trust Fund - but not both.
According to the Congressional Budget Office, H.R. 4213 would result in a net increase in revenue of $40 billion over the next ten years. In addition, this bill would increase outlays by $174 billion over ten years (according to the Ways and Means Committee, the cost would be $191 billion, after factoring in other certain spending provisions). This bill would increase the deficit by $134 billion over the next ten years.
Revised Cost Estimate: The bill would increase net outlays by $102 billion over ten years. This bill would include increase the deficit by $54 billion. The net revenue increase is $47.829 billion. Finally, this bill would provide $30.524 billion in net tax relief.