Investment Pros Still Hoping For Better Terms On Carry Tax

From the WallStreetJournal.com:

Proposed new Senate legislation on carried interest taxation offers slightly more favorable terms to the private equity and venture capital industries than a bill already passed by the House of Representatives, but investment professionals continue to hope for better.

An amendment introduced by Sen. Max Baucus (D-Montana) suggests that beginning in 2013, 65% of carried interest would be taxed at normal income rates, while 35% would be taxed as capital gains. The House proposal set a 75%-25% split.

Unlike the House version, the Senate version also offers incentives for fund managers who hold investments for the long term, reducing the percentage of carry taxed as ordinary income to 55% for investments owned for at least seven years.

Both versions of the bill would phase in the higher tax rate, taxing 50% of carried interest as ordinary income in 2011 and 2012.

Carried interest has long been taxed at capital gains rates, currently around 15%. The normal income tax rate, in contrast, is currently around 35%.

The private equity industry has been lobbying heavily against the higher tax rates, and some senators have expressed concern the changes could stymie investment.

Highlights of House Tax and Spending Bill

On Friday, the House of Representatives passed a new tax and spending bill. Over the weekend the Associated Press published a list explaining the changes that would occur if the legislation were signed into law. You can find a few of the highlights below, or read the full article on Google News.

• Extends for one year about $32 billion in tax breaks that expired in January, including a property tax deduction for people who don't itemize, lucrative credits that help businesses finance research and develop new products, and a sales tax deduction that mainly helps people in states without income taxes.

• Increases taxes on investment and hedge fund managers, venture capitalists and many real estate investment partnerships by $18.7 billion.

• Increases taxes on oil companies by $11.8 billion by raising from 8 cents a barrel to 34 cents a barrel the tax they pay into the Oil Spill Liability Trust Fund.

• Raises taxes on multinational companies some $14.5 billion by limiting their ability to use credits for paying foreign taxes to lower their U.S. tax liability.

• Imposes $11.2 billion in new Medicare taxes on lawyers, doctors and other service providers.

New Legislation Could Help Consumers with Debt Management

From Credit.com:

As millions of Americans continue to struggle with debt management, a prominent senator has unveiled legislation aimed at reducing the amount they pay on overdraft fees.

This week, Connecticut Democratic Senator Chris Dodd, chairman of the Banking Committee, announced that his new legislation would reign in fees that can approach $30 or more for accounts that overdraft by even a few cents.

"Banks should not be trying to bolster their profits at the expense of their customers," said Dodd, who added that his bill would shine "more light on these practices" while giving consumers greater control over their financial decisions.

As it stands right now, consumers who overdraft may not always be aware that they have done so, and lenders will often allow a transaction to clear anyhow for a fee. However, that fee often applies to each transaction that takes place when an account is overdrafted, which can cost consumers well over $100 by the time they check their balances. Some banks have also been criticized for manipulating the order in which transactions are processed to make overdraft activity more likely.

Critics of this and similar reform bills maintain that it's the responsibility of consumers to know at all times how much money they have in their accounts, and that banks are providing them with a service by allowing them to use their cards in such situations.

Popular Tax Myths About the Health Care Reform Legislation

This week President Obama intends to address Congress to encourage them to pass their health care reform bill. However, with recent polls showing that a majority of Americans either moderately or strongly oppose the current legislation, getting members of Congress to vote in favor of it is going to be difficult. As the debate continues, it seems like television commercials and e-mail blasts are going out left and right to either promote or discredit the bill. To help people confused by some of the claims being made in these advertisements I have put together the following list of the top tax myths about the health care reform bill.

The Bill is Fully Funded

President Obama has repeatedly claimed that the health care overhaul will be paid for, and that he would not sign a bill that is not "deficit-neutral." The plan to raise taxes on the top income earners is expected to generate $239 billion in additional federal revenue over the next ten years. However, the reform is expected to cost more than $600 billion. Obama stated that his team has identified cuts to pay for the rest of the bill, including cuts to Medicare and payments to insurers and practitioners. However, these cuts are quite unpopular and have a history of never coming to fruition. This has left many wondering if Obama will go back on his promise and sign a bill that will increase the national debt and ultimately lead to additional tax increases.

US Taxpayers will Pay for Heath Care for Illegal Immigrants

Although there has been speculation that over 5 million illegal immigrants will be covered by Obama's health care plan, it is almost entirely a fabrication. The bill drafted by the House of Representatives specifically says that no money will be spent giving illegal immigrants health care. H.R. 3200: Sec 246 claims "nothing in this subtitle shall allow Federal payments for affordability credits on behalf of individuals who are not lawfully present in the United States."

The Government Health Agency will have Unlimited Access to Taxpayer's Financial Information

The myth that the government's new health care agency will have access to every American's financial information has been making the rounds for a few weeks. The actually legislation does allow the government to get certain information about taxpayers attempting to qualify for health benefits. However, the bill limits the information that can be requested to "(i) taxpayer identity information with respect to such taxpayer, (ii) the filing status of such taxpayer, (iii) the modified adjusted gross income of such taxpayer (as defined in section 59B(e)(5)), (iv) the number of dependents of the taxpayer, (v) such other information as is prescribed by the Secretary of regulation as might indicate whether the taxpayer is eligible for such affordability credits (and the amount thereof)." Additionally, the bill also limits the use of the information to only establishing and verifying the appropriate credit, "and providing for the repayment of any such credit which was in excess of such appropriate amount."

Employers Not Offering the Public Option will Pay an Additional 8% Tax

This myth is actually somewhat based in fact, except is has been exaggerated slightly. The current health care bill does require employers to either offer private health benefits or help pay for the public option through additional taxes. Employers with annual payrolls over $400,000 will have to pay 8%, and those with payrolls between $250,000 and $400,000 will pay a lesser amount. However, employers with payrolls under $250,000 will not have to pay an additional tax or be forced to offer health benefits.

Taxpayers without Acceptable Health Care will Pay 10% or More in Taxes

As part of the health care package, there is a mandate requiring everyone to have insurance. Therefore, those without acceptable coverage will have to pay a penalty. There have been dozens of rumors swirling around that this penalty could exceed 10% or more, however the actual bill calls for a penalty of 2.5% of a taxpayer’s adjusted gross income, not exceeding the national average premium for individual coverage.

Estate Taxes will be Locked in Before a Taxpayers Death

This claim, along with others of a suicide council, are all misinterpretations of a provision to the House's bill asserting that Medicare will cover voluntary end-of-life counseling sessions between seniors and their doctors. These sessions can include topics such as hospice care, creating a living will, etc. However, there is no mention of forcing taxpayers to lock in their estate taxes while on their deathbeds.