Senate Democrats

H.R. 4213, the American Jobs and Closing Tax Loopholes Act of 2010

UPDATE

On July 20, 2010, the Senate is expected to resume consideration of the House Message with respect to H.R.4213.  By consent, the motion to reconsider will be agreed to, and the Senate is expected to vote on the motion to invoke cloture on the motion to concur in the House Amendment to the Senate Amendment to H.R.4213, with a Reid amendment in the nature of a substitute 4425

The substitute amendment was originally introduced by Senator Reid on June 29, 2010. On June 30, 2010, the Senate voted on the motion to invoke cloture on the motion to concur in the House Amendment to the Senate Amendment to H.R.4213 with the ReidS.A.4425.  The vote failed, 58 to 38.  [Roll Call Vote 204

S.A. 4425 would retroactively extend unemployment benefits until November 30, 2010.  Unemployed Americans who lost their benefits when the program expired in June would be able to begin receiving their benefits again.   Other measures included in the original substitute amendment were passed separately in H.R.5623, the Homebuyer Assistance and Improvement Act of 2010, by unanimous consent on June 30, 2010. 

The substitute amendment extends the Emergency Unemployment Compensation (EUC) program which provides up to fifty-three weeks of extended benefits to out-of-work Americans.  The legislation extends the Extended Benefits (EB) program which provides 100 percent federal funding of up to an additional 13 to 20 weeks of benefits in certain states.   The bill eliminates the penalty for part-time employment in the Emergency Unemployment Compensation (EUC) program.

These measures would be considered emergency spending.

Summary

While the economy is starting to grow and recover from the worst financial and economic crisis since the Great Depression, real economic recovery is not possible without long-lasting, meaningful job creation.  That’s why Senate Democrats are committed to putting America back to work and strengthening our economy.  As a part of our year-long, multi-bill jobs agenda, Senate Democrats passed the bipartisan HIRE Act (H.R.2847, as amended) and the Travel Promotion Act (H.R.1299, as amended) earlier this year.  These two bills have the potential to create and save over a million jobs, strengthen American businesses, and boost our economy.

On May 20, 2010, Senate Finance Committee Chairman Baucus and House Ways and Means Committee Chairman Sander Levin introduced a proposal that would extend unemployment insurance benefits and eligibility for unemployment health care benefits through the end of 2010.  The legislation would also extend loan programs for small businesses and tax cuts that provide the certainty families and businesses need to create jobs, along with other important safety-net programs that families and communities depend on in this tough economic climate.  The House further revised the legislation before passing the bill on May 28, 2010.  On June 8, 2010, the Senate received the House Message with H.R.4213.  Senator Baucus then laid down a Substitute Amendment.

Specifically, H.R.4213, the American Jobs and Closing Tax Loopholes Act of 2010, as amended by the Baucus Substitute Amendment #4301, would:

·         Provide tax relief to businesses and state and local governments to help them invest and create jobs;

·         Provide important tax cuts to put money back in the pockets of working families;

·         Help restore the flow of credit to enable small businesses to expand and hire new workers by extending small business loan programs;

·         Expand career training programs for Americans who are looking for work;

·         Extend eligibility for unemployment insurance benefits, through November 30, 2010; and

·         Ensure that seniors, military service members and Americans with disabilities continue to have access to doctors they know and trust.

Measures included in this bill would be offset by closing tax loopholes for wealthy investment fund managers and foreign operations of multinational companies. 

Major Provisions

The following summaries are drawn heavily from analyses

provided by the Senate Finance Committee and House Ways and Means Committee.

Promoting American Jobs

Small Business

Small Business Administration.  The bill would extend the American Recovery and Reinvestment 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%.  Since its creation, the program has supported over $26 billion in small business lending, which has helped to create or retain over 650,000 jobs. 

Infrastructure Investments

The American Jobs Act and Closing Tax Loopholes Act includes a number of provisions that would support infrastructure investments.  The following information summarizes the infrastructure investment provisions in the legislation.

Build America Bonds.  The bill would extend the Build America Bonds program for two years (through 2012). For direct-pay Build America Bonds issued in 2011, the amount of the direct payment would be reduced from 35% to 32% of the coupon interest. For such bonds issued in 2012, the amount of the direct payment would be reduced to 30% of the coupon interest.

Recovery Zone Bonds.  The legislation would make an additional allocation of Recovery Zone bonds to ensure that each local municipality receives a minimum allocation equal to at least its share of national unemployment in December 2009. The bill would also extend the authorization for issuing Recovery Zone bonds through 2011.

Water and Sewage Exempt Facility Bonds.  The bill would exclude water and sewage exempt facility bonds from state volume caps. The bill would also exclude bonds financing facilities that furnish water and sewage facilities from certain limitations on tribal government issuances.

Alternative Minimum Tax – State and Local Governments.  The legislation would extend the exclusion given to private activity bonds from the AMT if the bond was issued in 2009 or 2010, and allowed AMT relief for current refunding of private activity bonds issued after 2003 and refunded during 2009 and 2010.  These provisions were included in the American Recovery and Reinvestment Act provisions for one year (i.e., exempt from AMT tax-exempt private activity bonds issued in 2011 and current refunding of private activity bonds issued after 2003 and refunded during 2011).

Direct payment in-lieu-of low-income housing credit. The bill would extend for one year (through 2010) the program that was enacted as part of the American Recovery and  Reinvestment Act that allows state housing agencies to elect to receive a payment in lieu of a  portion of the State’s allocation of low-income housing tax credits.

Tax-exempt eligibility for loans guaranteed by Federal Home Loan Banks. The legislation would extend the tax-exempt eligibility for loans guaranteed by Federal Home Loan Banks.  The Housing and Economic Recovery Act of 2008 helped these municipalities by temporarily allowing bonds that are guaranteed by Federal home loan banks to be eligible for treatment as tax-exempt bonds regardless of whether the bonds are used to finance housing programs.

Extension of temporary small issuer rules.  The bill would extend the benefits through 2011 the temporary small issuer rules for allocation of tax-exempt interest expense that were created by the American Recovery and Reinvestment Act.

Brownfields. The legislation would extend the expensing of brownfield environmental remediation costs for one year (through 2010) and the exclusion of gain on the sale or exchange of certain “brownfield” sites from unrelated business taxable income for one year (through 2010).

Surface transportation.  The bill would modify sections of the Surface Transportation Extension Act of 2010 to distribute the Projects of National and Regional Significance (PNRS) and National Corridor Infrastructure Improvement (National Corridor) program funding.  The bill would also distribute “additional” highway formula funds (which the bill makes available in lieu of additional Congressionally-designated projects) among all of the highway formula programs rather than among just six formula programs.  The bill also contains a savings clause, in regards to the funding based on the Projects of National and Regional Significance program and the National Corridor Infrastructure Improvement program, to allow each state to receive the greater of the amount that the state received under the Hiring Incentives to Restore Employment Act or the amount the state is authorized to receive under this bill.

Business Tax Relief

R&D credit.  The bill would reinstate for one year (through 2010) the research credit.

Refundable AMT credits for corporations making domestic investments.  The 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 United States.

The American Jobs Act would also extend for one year, through 2010:

·         Tax benefits for certain real estate developments, the special 15-year cost recovery period for certain leasehold improvements, restaurant buildings and improvements, and retail improvements;

·         Active financing exception, from Subpart F of the tax code; 

·         Look-through treatment of payments between related controlled foreign corporations; 

·         Employer wage credit for activated military reservists, which provides eligible small business employers with a credit against the taxpayer’s income tax liability for a taxable year in an amount equal to twenty percent of the sum of differential wage payments to activated military reservists; 

·         Five-year depreciation for farming business machinery and equipment that are used in a farming business; 

·         New Markets Tax Credit, permitting a maximum annual amount of qualified equity investments of $5 billion.  In order to ensure that the NMTC encourages AMT taxpayers to make qualifying investments, the bill would also allow NMTC to be claimed against the AMT with respect to qualified investments made between March 15, 2010 and January 1, 2012; 

·         Empowerment Zones:  Businesses and individual residentwithin Empowerment Zones – specially designated economically depressed census tracts – are eligible for special tax incentives;

·         Renewal Communities:  Businesses and individual residentwithin Renewal Communities – specially designated economically depressed census tracts – are eligible for special tax incentives; 

·         District of Columbia Enterprise Zone:  Businesses and individual residents within specially designated economically depressed census tracts within the District of Columbia are eligible for special tax incentives.  The bill would also extend for one year (through 2010) the $5,000 first-time homebuyer credit for the District of Columbia; 

·         Indian employment credit:  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; and 

·         Accelerated depreciation for business property on an Indian reservation:  the placed-in-service date for the special depreciation recovery period for qualified Indian reservation property would be extended.  In general, qualified Indian reservation property is property used predominantly in the active conduct of a trade or business within an Indian reservation, which is not used outside the reservation on a regular basis and was not acquired from a related person. 

Pension Relief

Extended period for single employer defined benefit plans to amortize certain shortfall amortization bases.  Present law provides for a 7-year amortization period in the case of a funding shortfall.  The provision would permit single employer defined benefit plan sponsors to elect an extended 9-year amortization period with interest only being paid in the first 2 years.  Alternatively, the plan sponsor may elect a 15-year amortization period.  Under the provision, the plan’s funding obligation for a plan year is increased if the sponsoring employer makes excessive employee or shareholder payments.  The provision generally allows plan sponsors to elect relief for up to two plan years during the four-plan-year period from 2008 to 2011.

Application of extended amortization period to plans subject to prior law funding rules.  The provision provides for funding relief for plans that are subject to the prior law funding rules (i.e., plans not yet subject to the requirements of the Pension Protection Act of 2006 (PPA)).  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 2 plan years.  The provision provides for an alternative election under which a plan may instead amortize funding liability under a 15-year payment schedule for one plan year.  The provision generally 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.

Suspension of certain funding level limitations.  The provision extends the Worker, Retiree, and Employer Recovery Act of 2008 (WRERA) relief for plan years beginning through 2011, allowing single employer defined benefit plans to use their funded percentage for the last plan year beginning before September 30, 2009.  The provision also 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.

Temporary allowance of election to apply credit balances against minimum required contribution.  Under present law, an employer may maintain a credit balance of contributions that it makes in excess of required minimum contributions, and such credits generally may be used in lieu of later year required minimum contributions unless the plan is less than 80 percent funded.  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.  Under present law, sponsors of pension plans are required to report additional information relating to the sponsor and the plan’s finances to the Pension Benefit Guaranty Corporation (PBGC) if the plan’s funded percentage is below 80 percent.  The provision modifies the reporting requirement by requiring additional reporting if aggregate unfunded vested benefits of plans maintained by the sponsor exceed $75 million.

Rollover of amounts received in airline carrier bankruptcy.  The provision permits qualified airline employees to rollover bankruptcy settlement amounts to a traditional IRA (present law permits rollover of such settlements to a Roth IRA), and to recharacterize a prior contribution of a settlement amount to a Roth IRA as a contribution to a traditional IRA.

Optional use of 30-year amortization periods.  Under present law, multiemployer pension plans must amortize net experience losses over a 15-year period.  The provision would permit plans to elect a 30-year amortization period for certain losses incurred in either or both of the first 2 plan years ending on or after June 30, 2008.  The 30-year amortization extension is not available unless the plan is projected not to have a decrease in its funded percentage in 15 years.  If a plan elects the extended amortization periods, benefit increases are restricted for a two-year period, unless the plan actuary certifies that increases are fully paid for by additional contributions by the plan sponsor and certain funding levels are projected to be met.  The provision also extends the maximum smoothing period for determining plan asset values from 5 years to 10 years for the either or both of the first 2 plan years ending on or after June 30, 2008. 

Optional longer recovery periods for multiemployer plans in endangered or critical status.  Under present law, certain underfunded multiemployer pension plans must improve their funding levels over a 10-year funding improvement period (15 years in the case of a seriously endangered plan) or a 10-year rehabilitation period.  WRERA permitted a 3-year extension of these periods.  The provision extends the WRERA relief so as to permit up to a 5-year extension of these periods (up to an additional 2 years for plans that elected WRERA relief). 

Modification of certain amortization extensions under prior law.  Prior to the Pension Protection Act of 2006 (PPA), amortization waivers were granted by the Internal Revenue Service to multiemployer pension plans, subject to the condition that the plans demonstrate funding improvement over a specified period.  Under the provision, for purposes of determining whether these funding-based conditions have been met, plans with such extensions may treat the return on plan assets for plan years that contain any of the period 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 in endangered or critical status.  Under the PPA, a default contribution schedule applies in the case of certain underfunded plans if the collective bargaining parties fail to reach agreement on a contribution schedule.  Under the provision, the plan trustees may 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.  The provision is effective to designations of default schedules on or after the date of enactment. Pursuant to section 221 of the PPA, the provision does not apply to plan years beginning after December 31, 2014.

Transition rule for certifications of plan status.  This provision provides transition rules with respect to certifications of a plan’s funded status for plans whose certifications are due after the date of enactment and for certain plans whose most recent certification does not take into account an election to take funding relief with respect to a plan year that begins on or after October 1, 2009.

Summer Jobs

Teens and young adults face some of the highest unemployment rates.  In April 2010, 25 percent of those aged 16 to 19 were unemployed and looking for a job.  The legislation would support over 300,000 jobs for youth ages 16 to 24 through support for summer employment programs.  Funding for the program will allow local Workforce Investment Boards to expand successful summer jobs programs that were funded in the Recovery Act and supported over 300,000 jobs for youth. 

Trade Provisions

Trade Adjustment Assistance for Communities – Community College and Career Training Grant Program.  Under current law, this Trade Adjustment Assistance (TAA) program provides grants to educational institutions to develop, offer and improve education and career training programs for workers eligible for TAA.  In the 2010 Reconciliation, the program received $500 million a year in mandatory funding for FY2011, FY2012, FY2013 and FY2014.  The provisions included in the bill would expand the program by authorizing such grants to also benefit individuals who are eligible for unemployment insurance, who are likely to be eligible for unemployment insurance or who have exhausted their unemployment insurance.  

Wool Trust Fund.  In 2000, Congress enacted a grant and tariff relief program for the U.S. wool industry.  The legislation created a “wool trust fund,” which provides payments to U.S. suit makers to compensate for the competitive damage to the U.S. suit industry caused by an inverted tariff.  (Inverted tariffs occur when the duty on a finished product (e.g., a suit) is lower than the duty on the inputs (e.g., fabric) used to make the finished product.)  The wool trust fund also makes payments to U.S. wool fabric and yarn producers, as well as sheep growers, to encourage more U.S. production of wool fabrics.  The trust fund is funded through the revenue collected from tariffs on wool textile imports (primarily yarns and fabrics).  The wool trust fund and tariff relief package was reauthorized in 2008.  In 2008 and 2009, the revenue generated through wool fabric/yarn tariffs shrank considerably, resulting in much lower payments to U.S. wool suit producers and other recipients under the program.  To address the immediate shortfall, the provision in the bill would use revenue generated from tariffs on other apparel products to fund the wool trust fund at the level authorized in 2004.  This provision would ensure that thousands of textile and apparel workers remain employed.

Cotton Trust Fund.  In 2006, as part of the last miscellaneous tariff bill, Congress enacted a program for U.S. cotton shirt manufacturers to respond to a commercial disadvantage caused by an inverted tariff.  The legislation created a “cotton trust fund,” which provides payments to U.S. shirt makers and U.S. cotton fabric and yarn producers, and created a pima cotton promotion program.  The trust fund is funded through the revenue collected from tariffs on cotton textiles imports (primarily yarns and fabrics).  The legislation also includes duty suspensions and reductions on high-end cotton fabrics and yarns, subject to quantitative limitations.  The authority to transfer tariff revenue to the trust fund expired on October 1, 2008, and the duty suspensions expired on December 31, 2009.  The provision included in the bill would reauthorize the program until December 31, 2013. The provision would ensure that more than 800 textile and apparel workers remain employed.

Relief for Working Families

Individual Tax Cuts

The American Jobs Act would extend for one year, through 2010:

·         Deduction of State and local general sales taxes, allowing individuals to elect 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;

·         Additional standard deduction for real property taxes on State and local real property taxes; 

·         Above-the-line deduction for qualified tuition and related expenses;

·         Above-the-line deduction for certain expenses of elementary and secondary school teachers 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.

Unemployment Insurance

The American Jobs Act would extend unemployment benefits through November 2010. 

Extends Emergency Unemployment Compensation (EUC) Program.  The Emergency Unemployment Compensation (EUC) program provides up to 53 weeks of extended benefits to qualifying individuals who have exhausted state unemployment benefits.  The number of weeks of additional benefits provided depends on a state’s unemployment rate.  After the state-provided benefits are exhausted, a worker can qualify for 34 more weeks of benefits provided by the federal government through EUC.  If a person is unemployed in a state with an unemployment rate above six percent, they qualify for an additional 13 weeks of benefits.  Unemployed workers in states with an unemployment level over 8.5 percent qualify for an additional six weeks of benefits. This program began to be phased out at the end of May 2010.  The legislation would extend EUC through November 2010.

Extends Extended Benefits (EB) program.  The federal government currently pays 100 percent of the cost of Extended Benefits (EB) programs in qualifying states.  The EB program provides between 13 to 20 additional weeks of benefits to unemployed workers who have exhausted regular state benefits or Emergency Unemployment Compensation in states with threshold unemployment rates.  The legislation would extend full federal funding of the EB program through November 2010.

Extends Federal Additional Compensation (FAC).  Last year, the Recovery Act increased weekly unemployment benefits by an additional $25 per week as part of Federal Additional Compensation (FAC).  This additional compensation is scheduled to end at the end of May 2010.  The legislation would extend FAC through November 2010.

Eliminates the penalty for part-time employment in the Emergency Unemployment Compensation (EUC) program.  Individuals eligible for unemployment benefits may unexpectedly encounter hurdles to receiving the proper benefits if they begin part-time work.  The legislation would address some of the unintended consequences and help individuals avoid disqualification for benefits.  The legislation would coordinate EUC benefits with regular benefits by providing States with a number of options to allow EUC claimants to remain eligible for the EUC program when they become newly eligible for State unemployment compensation.  Beneficiaries could qualify for these possible options if switching to state unemployment benefits would reduce their weekly unemployment benefits by at least $100 or by 25 percent.

TANF Jobs and Emergency Fund

Extension of TANF jobs and emergency fund. The American Recovery and Reinvestment Act created a new, $5 billion Emergency Contingency Fund (ECF) within the Temporary Assistance for Needy Families (TANF) program to help states with recession-related expense increases, including funding for subsidized employment programs.  These programs are scheduled to place 185,000 individuals into paid jobs by the time the fund expires, currently scheduled for September 30, 2010.  Expiration of the fund will cause some states to cease ECF-funded subsidized employment programs.  The American Jobs Act would provide $2.5 billion to extend this fund through Fiscal Year 2011 and clarify certain program rules.

Veterans Concurrent Receipt

Veterans concurrent receipt.  The bill would allow for two years concurrent receipt of both DOD military retirement pay and VA military disability pay.  No other federal employees are required to offset their federal retirement benefits if they also receive VA disability compensation.  Disability is to compensate for the impact on quality of life, an issue that military retired pay does not address.

National Housing Trust Fund

The legislation would provide a one-time capitalization of the National Housing Trust Fund (NHTF), which was created in 2008.  This would provide communities with funds to build, preserve, and rehabilitate rental homes that are affordable for very low-income households.  These homes will help address the serious shortage of affordable housing for lowest income families, including people who are unemployed or employed in the low wage work force, veterans, and elderly and disabled people on fixed incomes. 

While the number of extremely low income (ELI) renters increased from 8.9 million to 9.2 million from 2007 to 2008, the number of affordable units available to ELI renters declined from 6.2 million to 6.1 million available units.  These figures show that many renters are unable to find affordable rental options for their families.  It is estimated that an infusion of $1 billion in capital funds into the NHTF and $65 million for project-based vouchers to couple with NHTF capital grants would support the immediate production of 10,000 rental homes, creating 15,000 new construction jobs and 4,000 new jobs in ongoing operations.

Hold Harmless Provisions for Low-Income Families

Extension of poverty line hold harmless.  The American Jobs Act would keep the 2009 federal poverty guidelines in place through 2010 to avoid a reduction in eligibility for poverty-based programs.  A reduction would otherwise occur because of the decrease in the average cost of goods that results from the economic downturn.  This provision would allow all currently eligible individuals to remain eligible for poverty-based programs. 

Uniform tax disregard for federally-funded programs.  The legislation would exclude federal tax refunds from income in the month received and from resources for FY2010 for the purpose of determining eligibility for federal or federally-assisted programs.  This single standard would replace the various disregards that now apply to certain tax credits.  This provision is estimated to cost $2 million over 10 years.

Disaster Response

The American Jobs Act and Closing Tax Loopholes Act includes a number of provisions that would provide disaster assistance.  The following information summarizes those disaster assistance provisions.

Oil Spill. The legislation would increase the $1 billion liability cap of the Oil Spill Liability Trust Fund to $5 billion and increase the amount that oil companies are required to pay into the Oil Spill Liability Trust Fund to 41 cents per barrel.

National Flood Insurance.  The bill would extend the authority of National Flood Insurance Program authority to write and renew flood insurance coverage through December 31, 2010.

Mine Safety. The legislation would extend for one year (through 2010) the credit for training mine rescue team members and would allow this credit to be claimed against the AMT.  The legislation would also extend for one year (through 2010) the provision that provides businesses with fifty percent bonus depreciation for certain qualified underground mine safety equipment.

Federally Declared Disaster Areas.  The bill would extend for one year (through 2010) the provision that allows taxpayers who have suffered loss as a result of a Federally-declared disaster to claim a deduction for casualty losses and would allow these taxpayers to calculate their casualty loss deduction without regard to their adjusted gross income.

Expensing of qualified disaster expenses. The legislation would extend for one year (through 2010) the provision that allows businesses that have been affected by a Federally-declared disaster to currently deduct demolition, repair, clean-up, and environmental remediation expenses.

Five-year carry-back period.  The bill would extend for one year (through 2010) the provision that allows businesses to carry back to the previous five years casualty losses that are attributable to a Federally-declared disaster and qualified disaster expenses.

Mortgage revenue bonds.  The bill would extend for one year (through 2010) the provision that allows states to waive certain rules that limit their ability to use tax-exempt housing bonds to provide loans to taxpayers that wish to acquire residences in Federally-declared disaster areas.

Bonus depreciation.  The bill would extend for one year (through 2010) the provision that permits businesses that suffered damage as a result of a Federally-declared disaster to claim an additional first-year depreciation deduction equal to 50 percent of the cost of new real and personal property investments made in the Presidentially-declared disaster area.

Increased small business expensing.  The bill would extend for one year (through 2010) the provision that increases by $100,000 (or the cost of qualified property, if less) the amount of expensing available for qualifying expenditures made in a Federally-declared disaster area.

Agriculture Disaster Relief. The bill would provide assistance for 2009 agricultural losses for crops, including specialty crops, livestock, sugar, aquaculture, cottonseed, and poultry. In addition to approximately $1 billion in supplemental direct payments to producers with a minimum 5-percent loss in production, the bill would provide $42 million in cottonseed assistance, $25 million in aquaculture assistance, $21 million to a Hawaiian sugar cane cooperative, $75 million to poultry producers, and $300 million for specialty crop producers.

New York Liberty Zone.  The bill would extend for one year (through 2010) the special depreciation allowance for certain real property within the New York Liberty Zone and the time for issuing New York Liberty Zone bonds.

Extend Work Opportunity Tax Credit for Hurricane Katrina Employees.  The bill would extend for one year (through August 28, 2010) the work opportunity tax credit for certain employers hiring in the Hurricane Katrina core disaster area.

Extension of increased rehabilitation credit.  The bill would extend for one year (through 2010) the increased rehabilitation credit for qualified expenditures in the Gulf Opportunity Zone. The Gulf Opportunity Zone Act of 2005 increased the rehabilitation credit from 10 percent to 13 percent of qualified expenditures for any qualified rehabilitated building other than a certified historic structure, and from 20 percent to 26 percent of qualified expenditures for any certified historic structure.

Gulf Opportunity Zone low-income housing placed-in-service date.  The bill would extend that placed-in-service date by two years (through 2012) for additional allocations of low-income housing tax credits created by the Gulf Opportunity Zone Act of 2005.

Domestic Energy

Energy. The American Jobs Act and Closing Tax Loopholes Act includes a number of energy measures and the following information summarizes those provisions.

Biodiesel and renewable diesel. The bill would extend for one year (through 2010) the $1.00 per gallon production tax credit for biodiesel and the small agri-biodiesel producer credit of 10 cents per gallon. The bill would also extend for one year (through 2010) the $1.00 per gallon production tax credit for diesel fuel created from biomass.

Open-loop biomass facilities.  The bill would extend the credit period under the production tax credit for electricity produced at open-loop biomass facilities that were placed in service prior to January 1, 2005 from five years to six years. In the sixth year, the credit provided to these facilities is reduced by twenty-percent.

Motor vehicle credit for heavy hybrids.  The bill would extend for one year (through 2010) the alternative motor vehicle credit for heavy hybrids.

Biomass, biogas, natural gas and propane used as a fuel in transportation vehicles.  The bill would extend for one year (through 2010) the $0.50 per gallon alternative fuel tax credit for liquid fuels derived from biomass, compressed or liquefied biogas, natural gas and propane. The bill would not extend this credit any liquid fuel derived from a pulp or paper manufacturing process.

Steel industry fuel tax credit.  The bill would extend the placed-in-service date for the $2.83 per barrel-of-oil equivalent tax credit for steel industry fuel by one year (through 2010) and would allow facilities that qualify for the tax credit to receive this benefit for the first two years from the date that the facility is placed in service.

Coke and coke gas. The bill would extend the placed-in-service date for the $3.36 credit per barrel-of-oil equivalent of coke or coke gas by one year (through 2010).

Energy-efficient new homes credit. The bill would extend the tax credit for manufacturers of energy-efficient residential homes for one year (through 2010).

Energy-efficient windows. Recently, the EPA updated the Energy Star requirements to take climate regions into account for their energy-efficient window specifications.  The legislation would link eligibility for the tax credit to the Energy Star requirements.

Energy-efficient appliance tax credit. The bill would allow manufacturers of energy-efficient appliances to elect to receive a direct payment in lieu of the section 45M energy-efficient appliance tax credit.

Electric transmission property. The bill would extend for one year (for sales prior to January 1, 2011) the present law deferral of gain on sales of transmission property by vertically integrated electric utilities to FERC-approved independent transmission companies.

Marginal wells. The bill would extend for one year (through 2010) the suspension on the taxable income limit for purposes of depleting a marginal oil or gas well.

Extensions of Other Expiring Tax Provisions

Charitable Provisions

The American Jobs Act would extend for one year, through 2010:

·         Extension of provision encouraging contributions of capital gain real property for conservation purposes:  the increased contribution limits and carry forward period for contributions of appreciated real property (including partial interests in real property) for conservation purposes;

·         Extension of enhanced charitable deduction for contributions of food inventory:  the provision allowing businesses to claim an enhanced deduction for the contribution of food inventory;

·         Extension of enhanced charitable deduction for contributions of book inventories to public schools:  the provision allowing C corporations to claim an enhanced deduction for contributions of book inventory to public schools (kindergarten through grade 12);

·         Extension of enhanced charitable deduction for corporate contributions of computer equipment for educational purposes:  the provision that encourages businesses to contribute computer equipment and software to elementary, secondary, and post-secondary schools by allowing an enhanced deduction for such contributions;

·         Extension of tax-free distributions from individual retirement plans for charitable purposes:  the provision that permits tax-free distributions to charity from an Individual Retirement Account (IRA) of up to $100,000 per taxpayer, per taxable year;

·         Extension of special tax treatment of certain payments to controlling exempt organizations:  the special rules for interest, rents, royalties and annuities received by a tax exempt entity from a controlled entity; and

·         Extension of special rule for S corporations making charitable contributions of property:  the provision allowing S corporation shareholders to take into account their pro rata share of charitable deductions even if such deductions would exceed such shareholder’s adjusted basis in the S corporation.

Miscellaneous

Timber. The bill would extend the rules created by Congress in 2007 for real estate investment trusts (REITs) that earn timber income.

Railroads. The legislation wouldextend for one year (through 2010) the railroad track maintenance credit.

Closing Foreign Tax Loopholes

The American Jobs Act includes a package of provisions developed jointly by the Treasury Department, the Committee on Ways and Means and the Senate Finance Committee to curtail abuses of the U.S. foreign tax credit system and other targeted abuses.  This system is intended to ensure that U.S.-based multinational companies are not subject to double taxation.  The bill would eliminate $14.451 billion of foreign tax credit loopholes.

Rules to prevent splitting foreign tax credits from income.  To address abuses that have arisen in the wake of rules designed to prevent double taxation by a foreign country and by the United States on the same item of income, the President’s FY2011 Budget proposes to adopt a matching rule to prevent the separation of creditable foreign taxes from the associated foreign income.  The American Jobs Act would adopt the President’s Budget proposal by implementing 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 targets abusive techniques and does 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.

Denial of foreign tax credit with respect to foreign income not subject to United States taxation by reason of covered asset acquisitions.  The bill would prevent taxpayers from claiming the foreign tax credit with respect to foreign income that is never subject to U.S. taxation because of a covered asset acquisition.  The provision would generally apply to related party transactions occurring after the date of introduction and unrelated party transactions occurring after the date of enactment.

Separate application of foreign tax credit limitation to items resourced under tax treaties.  Taxpayers have devised a technique to use the U.S. treaty network to enhance foreign tax credit utilization by artificially inflating foreign source income.  With this technique, ownership of income-producing assets that would ordinarily be held by U.S.-based multinational companies in the United States (e.g., investments in U.S. securities) is shifted to foreign branches and disregarded entities.  This income is often lightly taxed on a net basis by the foreign country, but the treaty prevails in categorizing the entire gross amount of the income generated by the U.S. assets as foreign source.  This artificially inflates the taxpayer’s foreign source income and allows the taxpayer to use foreign tax credits to reduce taxes on foreign source income beyond the maximum amount of U.S. tax that could be imposed on such income.  The bill respects the treaty commitment to treating such income as 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 provision would apply to taxable years beginning after the date of enactment.

Limitation on the use of section 956 for foreign tax credit planning (i.e., the “hopscotch” rule).  The bill would limit the amount of foreign tax credits that may be claimed with respect to a deemed dividend under section 956 to the amount that would have been allowed with respect to an actual dividend.  The provision would apply to the affirmative use of section 956 after the date of enactment.

Special rule with respect to certain redemptions by foreign subsidiaries.  Where a foreign-based multinational company owns a U.S. company, and that U.S. company owns a foreign subsidiary, the earnings of the foreign subsidiary are generally subject to U.S. tax when they are distributed to the U.S. shareholder.  Under certain transactions, the sales of stock between related parties – for example, where a foreign-based multinational sells stock in the U.S. company to its foreign subsidiary – is treated as a deemed dividend.  This allows the foreign subsidiary’s earnings to bypass the U.S. tax system.  The American Jobs Act would prevent a foreign subsidiary’s earnings from being reduced in this way and, as a result, the earnings would remain subject to U.S. tax (including withholding tax) when repatriated to the foreign parent corporation as a dividend. The provision would apply to acquisitions after the date of introduction.

Modification of affiliation rules for purposes of rules allocating interest expense.  Taxpayers have used various techniques to minimize the amount of foreign source interest expense, which has the effect of artificially boosting foreign source income and permitting taxpayers to utilize more foreign tax credits than would otherwise be possible.  To prevent taxpayers from avoiding these rules, Treasury regulations prevent taxpayers from excluding foreign interest expense from the foreign tax credit limitation by placing it in foreign subsidiaries.  The regulations achieve this result by including certain subsidiaries in the U.S. affiliated group.  As a result, foreign source interest expense will be taken into account in the determination of the foreign tax credit limitation.  The bill would modify the affiliation rules to strengthen these anti-abuse rules.  The provision would apply to taxable years beginning after the date of enactment.

Repeal of 80/20 rules.  The bill would adopt the President’S.2011 Budget proposal to repeal 80/20 company rules, which can artificially increase the foreign source income of, and therefore the amount of foreign tax credits that may be claimed by, a U.S. multinational company.  The bill would also repeal the 80/20 rules for interest paid by resident alien individuals.  The bill would include relief for existing 80/20 companies that meet specific requirements and are not abusing the 80/20 company rules.  Subject to the relief for these existing 80/20 companies, the provision would apply to taxable years beginning after December 31, 2010. 

Closing Other Tax Loopholes

Individual Loopholes

Taxation of carried interest.  The bill would prevent investment fund managers from paying taxes entirely 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 gain 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 fifty percent (50%) of the remaining carried interest as ordinary income beginning on January 1, 2011 through December 31, 2012, and then sixty-five percent (65%) thereafter.   The rate is reduced to fifty-five percent (55%) for carried interest that does not reflect a return on invested capital but which is attributable to the sale of assets held for 7 or more years.

Ensuring collection of employment taxes earned by certain service professionals.  Some service professionals have been avoiding Medicare and Social Security taxes by routing their self-employment income through an S corporation.  These taxpayers then pay themselves a nominal salary and take the position that the remaining earnings are exempt from employment taxes.  The bill would address this abuse in situations where (1) an S corporation is engaged in a professional service business that is principally based on the reputation and skill of three or fewer individuals, or (2) an S corporation that is a partner in a professional service business.  The bill would also clarify that individuals that are engaged in professional service businesses are unable to avoid employment taxes by routing their earnings through a limited liability corporation or a limited partnership.

Corporate Loopholes

Clarification of gain recognized in certain spin-off transactions (e.g., “Reverse Morris Trust” transactions).  The bill would treat distributions of debt securities in a tax-free spin-off transaction in the same manner as distributions of cash or other property.  Subject to a transition rule, the provision would apply to exchanges after the date of enactment. 

Taxation of dividends received in certain business reorganizations (e.g., the “boot-within-gain” limitation).  The bill would repeal the boot-within-gain limitation in the case of any reorganization transaction (that is, it would apply to both domestic and cross-border transactions) if the exchange has the effect of the distribution of a dividend.  The bill would also ensure that an appropriate amount of earnings is taken into account in determining the amount of the dividend. Subject to a transition rule, the provision would apply to exchanges after the date of enactment.

Maintaining Access to Affordable Health Care

Sustainable Growth Rate

Medicare physician payment rates.  As of June 1, 2010, the sustainable growth rate formula will require a reduction in physician payments of more than 20 percent.  The American Jobs Act would provide a 2.2 percent increase in payment rates for the remainder of 2010, and a one percent update for 2011.  Rates would return to current law levels in 2012. 

Federal Medicaid matching rate (FMAP)

Extension of temporary increase in Federal Medicaid matching rate (FMAP).  Under current law, the federal Medicaid matching rate is increased by 6.2 percentage points for all States, and by additional percentage points for states with high unemployment.  These temporary increases were enacted in ARRA in February 2009 in response to the increased Medicaid caseloads and decreasing state revenues resulting from the recession.  The increase is scheduled to expire on December 31, 2010.  The bill would extend these increases for six months, through June 30, 2011.  This will ensure that states continue to receive these increases throughout state fiscal year 2011.

Other Health Provisions

Additional health provisions include:

·         Addition of inpatient drug discount program to 340B drug discount program.  This provision would extend discounts provided by drug manufacturers on outpatient drugs to inpatient drugs provided for use by patients who are uninsured or do not have prescription drug insurance coverage, for certain 340B-eligible entities.

·         Continued inclusion of orphan drugs in definition of covered outpatient drugs with respect to children’s hospitals under the 340B drug discount program.

·         Extension of Section 508 reclassifications.  This provision would extend hospital geographic reclassifications, scheduled to expire on September 30, 2010, through FY 2011.

·         Repeal of delay of RUG-IV.  This provision would repeal the existing delay on implementation of Version 4 of the Resource Utilization Groups (RUG IV) for purposes of reimbursing skilled nursing facilities, allowing it to take effect on October 1, 2010.

·         Funding for claims reprocessing.  This provision would provide funding for the Centers for Medicare & Medicaid Services (CMS) to reprocess claims affected by Medicare payment policy extensions that were enacted into law on March 23, 2010.

·         Conforming amendment related to waiver of coinsurance for preventive services.  This provision would clarify that waivers of cost sharing and deductibles for Medicare preventive services apply when those services are furnished at Federally Qualified Health Centers and Rural Health Clinics.

·         Establishment of CMS-IRS data match to identify fraudulent providers.  This provision would help to identify potentially fraudulent providers sooner by authorizing CMS to collaborate with the IRS to determine whether health care providers applying to participate in Medicare have failed to file federal tax returns or have delinquent tax debts.

·         Clarification of effective date of Part B special enrollment period for disabled TRICARE beneficiaries.  To ensure that eligible beneficiaries are able to take advantage of a special enrollment period (SEP), this provision would clarify the effective date of the SEP for disabled Medicare beneficiaries who are also eligible for TRICARE.

·         Limitation on reasonable costs payments for certain clinical diagnostic laboratory tests furnished to hospital patients in certain rural areas.  This provision would repeal the reinstatement of cost-based payments for lab services at certain small hospitals, scheduled to take effect after July 1, 2010.  This policy previously expired on July 1, 2008.

·         Adjustment to Medicare payment localities.  This provision would update the method used to determine the localities used for Medicare’s physician geographic adjustment in California, utilizing an approach that is based on metropolitan statistical areas.

·         Medicaid and CHIP technical corrections.  This provision would make technical corrections to Medicaid and CHIP relating to exclusion from participation, income eligibility levels for children, measurement of payment error rates, coverage of children of state employees, and payment for electronic health records.

·         Clarification of three-day payment window.  This provision would conform current law, which includes all services related to an inpatient admission in a bundled payment for that admission, with recent practice by preventing future unbundling of services and submission of adjustment claims seeking separate and additional Medicare payments.   

Other Provisions

Cobell and Pigford settlements.  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 government’s management and accounting for over 300,000 American Indian trust accounts, and the Pigford settlement ends a decades old discrimination lawsuit brought by black farmers against the USDA.

Extension of State Court Improvement Programs. The legislation would fund the extension of programs that currently provide funds to help courts improve the processing of foster care and adoption cases.  The funding would support a one year extension.

Legislative History

On December 7, 2009, H.R.4213 was introduced in the House and agreed to by a 241 to 181 vote on December 9 (Roll no. 943). 

On December 10, the measure was received in the Senate and referred to the Committee on Finance.  On March 1, the Senate Committee on Finance discharged H.R.4213 by Unanimous Consent.  Later that day, the measure was laid before the Senate by unanimous consent.  Senators Baucus, on behalf of Senator Reid and himself, offered a substitute amendment (S.A. 3336), the American Workers, State, and Business Relief Act.

Cloture was invoked on S.A. 3336 on March 10, and the substitute amendment was agreed to by Unanimous Consent.  On the same day, the Senate passed H.R.4213,as amended by the Baucus substitute, with a vote of 62 to 36.  On March 18, a message on Senate action was sent to the House.  Senator Baucus and House Ways and Means Chairman Sander Levin then worked with House and Senate leadership and their colleagues to merge the two packages into the American Jobs and Closing Tax Loopholes Act.

On May 28, 2010, the House held two roll call votes: By a vote of 215-204, the House concurred in the Senate Amendment, as amended by the House, except for the portion comprising Sec.523., Medicare Sustainable Growth Rate Reform; by a vote of 245-171, the House concurred in the Senate Amendment, as amended by the House comprising the portion Sec.523., Medicare Sustainable Growth Rate Reform.

On June 8, 2010, the Senate received the House Message with H.R.4213.  Senator Baucus then laid down a Substitute Amendment.

Expected Amendments

The DPC will distribute information on amendments as it becomes available to staff listservs.

Administration Position

On May 24, 2010, the White House released its Statement of Administration position on the House Amendment to Senate Amendment to H.R.4213:

“The Administration strongly supports House passage of the House Amendment to the Senate Amendment to H.R.4213.  Passage of this legislation will provide much-needed relief to families, including extended access to health care benefits for workers who have lost their jobs and extended unemployment insurance benefits for millions of Americans who are looking for work.  It will also provide critical assistance to hard-pressed States while encouraging continued job creation by America’s businesses.  The importance of longer-term extensions for various authorities and programs – and the certainty that such extensions bring – has been highlighted by the severe problems caused by interruptions in authorities for these programs.

“The House Amendment contains several important provisions, including: (1) an extension of extended unemployment insurance and COBRA subsidies through the end of the year; (2) reform of the physician payment formula; (3) an extension of increased American Recovery and Reinvestment Act (ARRA) Federal Medical Assistance Percentage (FMAP) rates that allow for additional Federal support for State Medicaid programs; (4) an extension of the Temporary Assistance for Needy Families (TANF) Emergency Fund to continue support for State-subsidized employment programs for needy parents and youth, among other purposes; (5) an extension of ARRA subsidies so that the Small Business Administration can continue certain lending programs with reduced fees and higher guarantees; (6) additional resources to create summer jobs for youth; (7) targeted pension-funding relief; and (8) extension of provisions that will support affordable housing and create jobs.

“The President has long supported comprehensive, fiscally responsible reform of the physician payment formula to improve the quality of care.  The House Amendment provision represents significant progress toward that goal, and the Administration strongly supports its passage.

“The Administration applauds the Congress for including provisions in the bill to fulfill the obligations set forth in the Cobelland Pigford II settlement agreements.  The settlements that have been achieved are historic and provide full and final resolution to two long-running disputes – a case involving the management of individual Indian trust accounts related to Indian lands and claims of prior discrimination brought by black farmers against the Department of Agriculture.

“The bill also includes several other important measures supported by the Administration.  The extensions to expiring tax cuts include several provisions that will encourage companies to invest in new technologies and create more high-tech jobs for the 21st century, including extending the research and experimentation (R&E) tax credit for another year.  The legislation also extends the tax credit for biodiesel and renewable diesel, providing clean energy companies with the certainty they need to make critical investments in the Nation’s energy future.

“Finally, the House Amendment includes revenue-raising provisions similar to those included in the President’s budget, including proposals to close international tax loopholes that currently allow companies to shift profits among overseas jurisdictions to lower their U.S. taxes and a sensible proposal to make certain that investment managers pay taxes on their earnings at rates closer to the ordinary income tax rates paid by other workers in the Nation’s economy.

“The Administration looks forward to continuing to work with the Congress on these and additional measures to spur private sector job creation, including measures focused on small businesses (including lending provisions, zero capital gains for small businesses and bonus depreciation) and energy (including retrofits and an expansion of the 48C tax credit for manufacturing).”

Resources

Congressional Research Service

Medicare Physician Payment Updates and the Sustainable Growth Rate (SGR) System (May 24, 2010)

The Housing Trust Fund:  Background and Issues (May 24, 2010)

Certain Temporary Tax Provisions Expiring in 2009 (May 18, 2010)

Unemployment and Health Insurance: Current Legislation and Issues (April 26, 2010)

Health Insurance Premium Assistance for the Unemployed: The American Recovery and Reinvestment Act of 2009 (April 21, 2010)

American Recovery and Reinvestment Act of 2009 (ARRA, P.L. 111-5): Title V, Medicaid Provisions (March 17, 2009)

Senate Democratic Policy Committee

Democrats Are Committed to Putting Americans Back to Work

On Your Side: Democrats Are Delivering Tax Cuts for the Middle Class

Senate Democrats Are On Your Side: Supporting Americans Looking for Work

Senate Democrats Are On Your Side: Bipartisan HIRE Act Creates Jobs and Strengthens Businesses

Senate Democrats Are On Your Side: Creating Jobs, Supporting Economic Recovery

Senate Democrats Are Fighting for Americans Looking for Work

The American Workers Act Helps Those Hit Hardest by the Recession

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