WASHINGTON, May 27 (Reuters) – Two respected former U.S. lawmakers whose names have become synonymous with bipartisan compromise in a highly divisive Congress are meeting with dozens of lawmakers to forestall a potential year-end fiscal crisis dubbed “taxmageddon.”

Former Democratic White House chief of staff Erskine Bowles said he and former Republican Senator Alan Simpson, are working with a bipartisan group of 47 Senators and as many House members to frame a compromise on $7 trillion in looming fiscal decisions, Bowles said on CNN’s news program, “Fareed Zakaria GPS.”

Without a deal, the end of the year brings higher taxes for most Americans with the expiration of historically low income tax rates enjoyed by nearly every American and expiry of a payroll tax break, along with broad automatic spending cuts that most lawmakers in both parties want to avoid.

“I believe this group will come together during the lame duck,” after the Nov. 6 elections, said Bowles, in reference to the congressional session that occurs after an election but before the new members have been sworn in.

Bowles co-chaired a presidential commission on reducing the federal deficit with Simpson that failed to win enough support to move forward, but which is held up by many moderates as a model for a potential deal.

“I believe the markets will force us,” to come to a deal, Bowles said.

Bowles was White House chief of staff from 1996-98 under Democratic President Bill Clinton and Simpson was a Republican Senator from Wyoming from 1979 to 1997.

WASHINGTON (Reuters) – The U.S. House of Representatives will vote on renewing historically low individual tax rates before its August recess, a top Republican said on Friday, in what will be the opening gambit of a months-long, pivotal fight over tax policy.

Low income tax rates enjoyed by nearly every American are set to expire at year’s end. Tackling the issue will be a major challenge for a fractured Congress that disagrees on whether the tax cuts for the wealthiest should be allowed to lapse.

With the December 31 deadline looming and the presidential election campaigns between President Barack Obama and Republican challenger Mitt Romney intensifying, the fate of the tax cuts already has become a high profile issue.

Candidates for Congress also are touting the need to decide the tax issue sooner rather than later to give voters more certainty and to help boost an economy struggling to grow.

But with the two sides far apart, the fight over the tax cuts could end up being worked out at the last minute and as part of a broader deal on several controversial budget and tax matters.

The rates were originally enacted in 2001 and 2003 under President George W. Bush and extended for two years by President Barack Obama. Obama and his fellow Democrats now say the wealthy should pay more to help chisel down annual budget deficits topping $1 trillion in recent years.

Republicans, who control the U.S. House, want to extend the rates for every income group and argue raising them for the wealthiest will harm the economy.

WASHINGTON (Reuters) – Tax regulators are preparing for a potential tax hike on profits earned by private equity managers such as Republican presidential candidate Mitt Romney known as “carried interest,” to be ready if the issue flares up in coming months.

The tax-collecting Internal Revenue Service will need to write detailed regulations to implement any new law. The agency will make recommendations now to lawmakers if it sees problems, an IRS official told Reuters.

“We have to look down the road that it may become law,” the official said, when asked if the issue was under consideration. “We don’t want to be surprised,” the official added, declining to be identified.

Carried interest is the slice of profits that private equity fund managers earn on their investments. The amounts can be huge if the funds perform well and make their managers very wealthy.

President Barack Obama and most other Democrats in Washington favor lifting the levy on this type of income, which is now taxed at the 15 percent capital gains rate rather than the top 35 percent rate applied to wages or salary.

The Democratic critics say Romney’s taxes illustrate an unfair loophole. Romney, a co-founder of buyout firm Bain Capital, earns most of his income from investment profits, dividends and interest.

The Obama re-election campaign eyes Romney’s taxes and his time at private equity firm Bain Capital as a weakness for the Republican opponent. Obama has highlighted lightly-taxed millionaires to paint Romney as unfairly privileged.

WASHINGTON (Reuters) – A stalemate over how to tackle a series of fiscal deadlines at year’s end would likely push the United States economy into recession in the first half of next year, the Congressional Budget Office warned on Tuesday.

A wave of U.S. tax hikes and automatic spending cuts – dubbed the “fiscal cliff” – are set to take effect in January unless Congress and the White House agree on ways to delay or revise at least some of them.

The CBO, the official budget and economic analyst for lawmakers, said the U.S. economy would contract at an annual rate of 1.3 percent for the first half of 2013 if lawmakers take no action to prevent the looming tax hikes and spending cuts.

“Given the pattern of past recessions … such a contraction in output in the first half of 2013 would probably be judged to be a recession,” the CBO said.

At the same time, CBO said growth would snap back in the second half of the year to 2.3 percent, though it did not offer an explanation.

Historically low tax rates enacted under former President George W. Bush in 2001 and 2003, and jobless benefits for the long-term unemployed are both set to expire on December 31, as is a temporary payroll tax cut.

In addition, $1.2 trillion in across-the-board reductions in spending on federal programs would begin to phase in as a result of Congress’ failure late last year to find a comprehensive deal to cut the budget deficit.

WASHINGTON (Reuters) – Bank of New York Mellon Corp (BK.N: Quote, Profile, Research, Stock Buzz) faced off against the U.S. government on Thursday in closing arguments over a $900 million tax benefit that the Internal Revenue Service called “tax abuse.”

The case is the first to go to trial since the IRS accused some banks of generating artificial foreign tax credits through loans with London-based Barclays Plc (BARC.L: Quote, Profile, Research, Stock Buzz).

The tax benefit stems from a $1.5 billion loan to BNY Mellon from Barclays Plc (BARC.L: Quote, Profile, Research, Stock Buzz), which also helped several other U.S. banks generate billions in foreign tax credits. Barclays has not been accused of any wrongdoing.

Bank of New York’s financing agreement “is just tax abuse tacked onto a pricey loan,” Jill Frisch, attorney for the IRS, told U.S. Tax Court Judge Diane Kroupa.

The banks in question used foreign tax credits, which are given to U.S. companies to prevent them from being double-taxed by two countries for the same income. The banks call it a legal funding strategy; the government calls them sham tax shelters.

“No business willingly subjects its profits to double taxation on the same income,” Bernard J. Williams, an attorney for Bank of New York, argued.

The bank has said that it may have to change its reserve for uncertain tax events by a net amount of up to $850 million depending on the outcome of the case, according to regulatory filings.

WASHINGTON (Reuters) – A top Republican lawmaker on Thursday stepped up pressure to force action next year on a rewrite of the U.S. tax code, which both major political parties agree has become overly complicated and inefficient.

The chairman of the tax-writing panel in the U.S. House of Representatives said rank-and-file Republicans favor forcing a vote this year on a plan to overhaul the tax system in 2013.

Representative Dave Camp, chairman of the House Ways and Means committee, said after weeks of meetings he saw strong Republican support for using year-end expiration of individual rates “as leverage to force action in 2013 on comprehensive tax reform.”

“We should enact fast-track procedures to compel comprehensive tax reform next year,” Camp said at a tax policy forum, calling on Senate Democrats and President Barack Obama to embrace the idea as well.

The voluminous U.S. tax code has been weighted down with deductions, credits and other carve-outs for selected groups since its last revamp a generation ago in 1986.

The so-called fast-track procedures force up-or-down votes with no amendments and set deadlines. Camp said his panel could draft a proposal by August. The lawmaker cited 34 examples of such ‘fast track’ authority already in law.

Republican House Speaker John Boehner this week demanded more spending cuts in exchange for raising the federal government’s legal borrowing authority, and also introduced the fast-track approach, used in the past for moving trade agreements.

WASHINGTON, May 16 (Reuters) – Chief financial officers for some big U.S. companies, including Verizon Communications Inc and Southern Co, will lobby lawmakers on Thursday as part of a push to halt a dividend tax increase set to take effect at year’s end if Congress fails to act.

The “fly-in” is the latest effort by big companies, especially those that pay dividends, to try to head off the pending tax increase on dividends, as well as capital gains.

The top tax rate on dividends is due to rise from an historically low 15 percent to about 40 percent at the end of the year, barring a last-minute deal in Congress.

President Barack Obama’s budget calls for raising the dividend rate to about 40 percent for wealthy individuals only.

The looming tax hike is one of several pressing fiscal issues that will converge at year’s end, including expiration of lower income tax rates enacted under former President George W. Bush and extended for two years by Obama.

Action on these items will likely be put off until after the Nov. 6 elections. Democrats want to let some of the tax breaks for the wealthy expire. Republicans generally oppose tax increases of any kind.

CFOs from American Water Works Co Inc, PPL Corp and Windstream Corp are among those who will meet with Representative Peter Roskam, a member of the Republican leadership team in the House of Representatives, and other lawmakers.

By Kim Dixon

(Reuters) – President Barack Obama’s healthcare overhaul law contains a slew of new tax provisions, and their fate is unclear as the U.S. Supreme Court weighs the law’s constitutionality.

Some have been put into effect in the two years since Obama signed the law, including a tanning salon tax and tax credits for small businesses. Other provisions will be phased in over time.

A ruling on the law is expected in late June. Here is a look at major tax provisions in Obama’s Patient Protection and Affordable Care Act.

IN EFFECT

Small business tax credits. For businesses with fewer than 25 workers and average annual wages of less than $50,000 a person, the credit is meant to offset the costs of healthcare coverage provided by the businesses. Set now at up to 35 percent of employer contribution for small employers and 25 percent for tax-exempt employers, the credit will rise by 2014 to up to 50 percent.

Drugmaker fees. An annual fee on drugmakers based on sales and market share, this will raise $2.8 billion in government revenue for 2012-2013, rising to $4.1 billion in 2018. The fee then ticks back down to raise $2.8 billion in 2019 and later.

WASHINGTON, May 16 (Reuters) – While U.S. Supreme Court watchers focus on the controversial insurance requirement in President Barack Obama’s healthcare law, lesser known is that the court’s ruling next month will also decide the fate of billions of dollars in new taxes.

The 2010 law includes a 3.8-percent boost in taxes on investment income and a 0.9-percent increase in the Medicare payroll tax, both hitting people who earn more than $200,000 a year.

Set to take effect in 2013, the two increases have been called into question by the court case, which also has clouded the outlook for new provisions already in effect, such as a small business tax credit and a tax on tanning salons.

Whatever the ruling, it will be fodder for both political parties as they campaign in the final months before the Democrat Obama faces voters against likely Republican nominee Mitt Romney on Nov. 6.

The Supreme Court heard arguments in March on the lawsuit that contends Congress and Obama went too far in requiring Americans to hold health insurance by 2014 or pay a penalty - the core of the overhaul known as the “individual mandate.”

Its ruling is expected before the end of June.

“Most people aren’t aware of the tax provisions,” said Paul Sracic, political science professor at Youngstown State University in Ohio. “If the court decides against the individual mandate, the electoral consequences may hinge on the question of whether the entire law must fall.”