Loopholes Bill Struggling to Survive Senate Passage

After being shot down on the Senate floor, the Senate Finance Committee¬†has submitted a revamped version of the American Jobs and Closing Tax Loopholes Bill of 2010. ¬†The bill was rejected after being called a “watered down” version of the original House legislation passed at the start of June.

The so-called weaker version decreased the proportion of carried interest (the share of investment fund profits that accrues to the managers of the fund, currently taxed as capital gains at 15%) that is to be recharacterized as ordinary income from 75% to 65%. The bill also proposed increasing the amount treated as capital gains from 25% to 35% in taxable years starting December 12, 2012. Assets held for more than seven years would have been even less harshly treated. However, the provisions were rejected by the Democrats.

The revised version is now proposing that 75% of fund managers’ income be taxed at regular tax rates, and better treatment for 50% of income derived from assets held for at least 5 years.

Senate Finance Committee Chairman Max Baucus said that the new propositions are less costly, after removing several spending measures. Baucus also claims that new rules for carried interest rules will pay for more than half of the cost of extension of the tax breaks.