Prior to adjourning for the July 4 recess, the Senate is expected to consider an extension of temporary tax provisions similar to the recent House-passed bill (H.R. 6049).

Currently, the Senate bill — a modified version of Senate Finance Committee Chairman Max Baucus’ (D-Mont.) original extenders bill (S. 2886)— would extend temporary tax provisions including the research and development credit, multinationals’ active financing exemption for taxes deferred on income earned abroad and renewable energy incentives for two years and patch without any offset the Alternative Minimum Tax (AMT) for one-year. The success of this legislation, including the extenders being paid for, depends on getting 60 votes to end a filibuster. Baucus prepared this substitute as a way of enticing Republicans to get over the 60-vote hurdle.

Meanwhile, the House-passed measure would only extend the temporary provisions for one year and does not include an AMT patch. Instead, the House plans to address the AMT in a separate bill in the next couple of weeks.

The $54 billion in expiring tax cuts have broad support for an extension, but the likely offsets to pay for the bill are expected to face opposition from Senate Republicans. According Baucus the offsets will be similar to the revenue-raisers used in the House-passed version of the bill. The House bill would raise $24 billion over ten years by imposing immediate tax changes to the treatment of deferred compensation paid by managers of offshore hedge funds and raises $29 billion over ten years by delaying the implementation of the worldwide interest allocation rule.

Similar to the House, the Senate may opt to consider patching the AMT separate from the extenders package. Democrats on the House Ways and Means Committee caucused on June 4 to discuss a number of offsets to pay for the approximately $60 billion patch covering tax year 2008.

One option the Democrats are considering is to impose a surtax on the wealthiest earners. In October, Rep. Rangel (D-N.Y.) included in his tax reform bill (H.R. 3970) a four percent surtax on earners of at least $200,000 to pay for a repeal of the AMT. Most recently, the House supported imposing a .47 percent surcharge on individuals making more than $500,000 and couples making more than $1 million beginning in tax year 2009.

In the meantime, Senate Republicans introduced legislation (S. 3098) that would patch the AMT and extend individual, business, and energy tax provisions without paying for them. The legislation, which was introduced by Senate Minority Leader Mitch McConnell (R-Ky.), and Senate Finance Committee Ranking Member Charles Grassley (R-Iowa), could be offered as an amendment during the Senate floor debate.

According to S. 3098, the AMT patch would cover tax year 2008, while most of the remaining provisions would be extended for two years through the end of 2009, including the deduction for state and local taxes and the research and development tax credit. The legislation also includes incentives designed to improve energy efficiency and clean energy production, an extension of alternative fuels and marginal production incentives, and tax administration provisions.

The extenders package faces opposition from the White House, as the administration does not support offsetting extensions of existing tax laws, arguing that spending programs continue in the budget baseline even after they expire and do not require offsets.