Levin starts from scratch in offsetting Senate-passed extender bill

Revenue offsets contained in the Senate-passed extender bill have been sequestered for health care reform legislation, forcing Ways and Means Chairman Sandy Levin (D-Mich.) to start from scratch in making sure extender legislation complies with paygo rules.

“You never know when a final decisions are final, but it looks like those provisions will be in the health bill,” Levin said.

The Senate on Wednesday passed legislation that, in part, resuscitates several expired tax breaks and extends jobless benefit through the end of the year.  It now travels to the House for approval.

The roughly $138 billion bill was partially offset by rescinding the “black liquor” tax break abused by companies that claim undeserved alternative fuel tax credits and specifying what constitutes an abusive tax shelter, known as the “economic substance doctrine.”

President Obama’s health care reform proposal includes the same provisions. But offsets cannot be used more than once and congressional leaders decided to strip the offsets from the Senate extender bill and apply them to health reform legislation.  This means Levin is must locate new offsets for the extender bill, which traveled to his chamber yesterday.

“We have to find like money for what’s called the extender bill,” Levin said. “And we haven’t really begun to discuss that.”

In the past, Levin has championed an offset that taxes investment compensation known as “carried interest” as ordinary income. This form of payment is currently taxed as capital gains, which hovers around 15 percent. Levin’s proposal would subject carried interest to income tax rates that go as high as 35 percent.

Senate leaders have yet to embrace taxing carried interest as income and Levin is reluctant to use the offset since the bill must return to the Senate for approval after it passes the House.

“I think because of the view of the Senate, it isn’t feasible to be in the package,” Levin said.

The black liquor and economic substance offsets are in a small and unique category since Democrats and Republicans do not find them controversial and their inclusion in bills cause little resistance. Levin could be hard pressed to find equally palatable revenue provisions, and enactment of the extender bill could be delayed as he seeks political buy in from lawmakers for offsets that will surely rankle at least some of them.

Levin has also yet to locate offsets for his small business jobs bill that is expected to cost between $12 billion and $13 billion. He is discussing potential revenue measures with committee ranking Republican Dave Camp (D-Mich.). A mark up on the small business jobs bill is slated for Tuesday.