 Tax Newsletter Fall 2011
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CONGRESSIONAL UPDATE
DEBT CEILING DEAL REACHED, TAX CHANGES MAY RESULT
Congress and the President reached an agreement on the debt ceiling increase in August, just one day before the U.S. was scheduled to run out of borrowing power. Under the new law, the debt ceiling was raised by
$900 billion immediately and will be raised again by either $1.5 trillion or $1.2 trillion later, depending on the next round of spending reductions. This increase should tide over the U.S. Treasury until 2013, after the next elections. Spending will be cut by at least
$2.4 trillion over 10 years. There are no tax increases in the first phase of the agreement, but tax changes could come into the mix in the next phase of the deficit reduction plan.
Deficit Reduction ‘Supercommittee’ Named
The debt-ceiling bill created a bipartisan Congressional committee, commonly known as the “Supercommittee,” to produce
$1.5 trillion in deficit reduction. The Supercommittee is not limited to spending cuts. It can recommend tax increases or tax loophole closers as well. The 12-member Supercommittee is slated to make its recommendations by Thanksgiving. The recommendations will then be subject to an up or down vote in Congress by December 23rd with no amendments allowed.
The members of the Supercommittee include three House and three Senate members appointed by Republicans and three House members and three Senators appointed by Democrats. A majority of the 12 members must support the package for it to pass. Therefore, with six Democrats and six Republicans, only one member would have to defect from each party to obtain that majority.
If the Supercommittee does not send something to Congress or if Congress does not pass the plan sent to it by the Supercommittee, then automatic spending cuts will take effect. The cuts will be split 50/50 between domestic and defense spending. However, Social Security, Medicare and low-income assistance programs are exempt from the automatic cuts. This means that the Defense Department could face steep cuts because defense spending is such a large part of the non-entitlement budget.
The Tax Angle
Right now, the Bush tax cuts are set to expire at the end of 2012. One thing is clear. Under the new debt-ceiling plan, tax changes are still on the table. If the bipartisan Supercommittee does not include tax reform in its deficit reduction proposals or if Congress does not approve the Supercommittee’s plan, the battle on extension of the Bush tax cuts moves to election season 2012.
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Information provided by the National Society of Tax Professionals
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