The Education Jobs and Medicaid Assistance Act was sent to the President's desk on August 10 after the House of Representatives, returning specially from its summer recess, approved the legislation by a vote of 247 to 161. The bill makes provision for USD10bn in funding to state governments to meet the cost of teacher salaries and an additional USD16.1bn to help them meet health funding shortfalls. According to House Speaker Nancy Pelosi, the bill will save 161,000 teacher jobs while the Medicaid funding will help prevent state governments from laying off more than 150,000 police officers, firefighters and other vital community posts. However, Rep. Dave Camp, the senior Republican on the House Ways and Means Committee, is of the view that the international tax offsets will actually destroy more than 140,000 private sector jobs by putting in place almost USD10bn in permanent tax hikes on US multinationals.

"Democrats suggest the state and local government bailout bill... will temporarily 'save' certain government jobs. But what they won’t tell you is that the USD9.6bn in permanent tax hikes they would impose to 'pay for' that extension of stimulus would destroy over 141,000 private sector jobs. That would be on top of the 2.5m private sector jobs already eliminated in the wake of their 2009 stimulus plan," Camp said.

Included in the bill are rules to prevent splitting foreign tax credits from the income to which they relate. This provision would implement a matching rule that suspends the recognition of foreign tax credits until the related foreign income is taken into account for taxing purposes in the US. This provision would apply to all split foreign taxes claimed by taxpayers after the date of introduction, and, according to the Joint Committee on Taxation (JCT), would increase company taxes by USD4.25bn over 10 years.

An additional provision would prohibit taxpayers from claiming the foreign tax credit with regard to foreign income that is never subject to US taxation because of a covered asset acquisition. The legislation would apply to related party transactions occurring after the date of introduction. The JCT estimates that this measure would raise USD3.64bn in tax over ten years.

Another measure would limit the amount of foreign tax credits that may be claimed on a deemed dividend under section 956 of the Internal Revenue Code to the amount that would have been allowed with respect to an actual dividend. According to JCT, this provision would increase taxes by USD704m over 10 years.

The legislation also terminates the '80/20' rule that excludes a corporation with gross income of at least 80% from a foreign source and attributable to foreign trade or business during a three-year period from a 30% withholding tax. Some corporations that meet specific requirements and are not abusing the '80/20' company rules may receive relief. This provision would increase taxes by USD153m over ten years, the JCT says.

Other measures would: eliminate a tax planning technique that allows foreign-based multinationals (e.g. a foreign-based company that owns a US company, and that US company owns a foreign subsidiary) earnings to bypass the US tax system; prevent taxpayers from using certain techniques to minimize the amount of foreign source interest expense, which has the effect of boosting foreign source income – thus allowing taxpayer to utilize more foreign tax credits; and eliminate the ability of recipients of the Earned Income Tax Credit (EITC) to receive advanced payments throughout the year by having their payments of withheld income reduced by their employer.

While President Obama said that it is now up to the states to get their fiscal houses in order, he argued that Congress and the administration could not "stand by and do nothing while pink slips are given to the men and women who educate our children or keep our communities safe."

Obama claims that the bill will not add to the federal deficit because it is "fully paid for, in part by closing tax loopholes that encourage corporations to ship American jobs overseas." But Republican Congressman Geoff Davis suggested that the bill "somehow managed to combine three major disturbing themes of Washington Democrats’ agenda – spend money we do not have, a bailout with taxpayer dollars, and job killing tax increases – into one USD26bn bill."

“We all agree that our children deserve an education system that can equip the next generation of workers and entrepreneurs, but more spending alone will not keep this promise to our children any better than the last trillion dollars of government stimulus ‘created’ jobs," he commented. "In fact, it could destroy another 141,000 private sector jobs as a result of the tax increases included in the bill."