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Budget Control Act of 2011 - Now What?
The new Budget Control Act of 2011 may have resolved the debt ceiling stalemate in Washington, but it leaves us hanging as far as long-term tax planning goes. Although the first $1 trillion round of deficit reduction over fiscal years 2012 through 2021 does not include revenue hikes, the second $1.5 trillion reduction over the same time period could include some fundamental tax changes.
Part of the Act established the Joint Select Committee on Deficit Reduction (JSC). It will be the JSC’s job to figure out how to reduce the deficit by the second $1.5 trillion and provide Congress with recommendations and legislative language that will significantly improve the short-term and long-term fiscal imbalance of the Federal Government, which could include some fundamental tax changes. The timetable for the JSC to complete its work is no later than:
- Aug. 16, 2011 - the 12 members and the co-chairs of the JSC must be appointed by the majority and minority leaders of the Senate, and the Speaker and minority leader of the House, who each must appoint three members. The Speaker and the majority leader of the Senate must each appoint one member to serve as co-chair from among the JSC members.
- Sept. 16, 2011 - The JSC is to hold its first meeting.
- Oct. 14, 2011 - House and Senate committees may transmit to the JSC their recommendations for law changes necessary to meet the goal of the JSC.
- Nov. 23, 2011 - By majority vote, the JSC must approve a report containing the findings, conclusions, and recommendations of the committee. The report must also include estimates provided by the Congressional Budget Office, legislative language in support of the committee’s recommendations, and a statement of the deficit reduction achieved over fiscal years 2012 through 2021. The report shall be made public promptly after the committee’s approval or disapproval.
- Dec. 2, 2011 - If a majority of the JSC approves a report and legislative language, they must be transmitted to the President, Vice President, the Speaker of the House, and the majority and minority leaders of the House and Senate.
- Dec. 23, 2011 - If the JSC approves a report and legislative language, it must be voted on by both the Senate and the House of Representatives. No amendments will be considered.
According to the administration, if the JSC fails to reach agreement on recommendations or if Congress fails to pass the recommendations, the $1 trillion in deficit reduction can almost be achieved by allowing the Bush era tax cuts to expire at the end of 2012.
In addition, Congress still appears to be playing their usual game of brinkmanship since they have not addressed a number of tax issues set to expire at the end of 2011. These expiring tax breaks include:
- Alternative Minimum Tax – The AMT exemptions will revert to the year 2000 levels in 2012 without Congressional action. If they fail to act, the AMT will snare about six to seven times as many taxpayers as are currently subject to AMT.
- Work Opportunity Credit – Eligible individuals must begin work before 1/1/12.
- Research Credit – Expires at the end of 2011.
- Above-the-line Education Expense Deduction – Will no longer be allowed.
- Teachers’ Above-the-line Deduction – Expires at the end of 2011.
- Bonus Depreciation – The 100% bonus depreciation expires (50% bonus still allowed) in 2012.
- Faster Write-off for Leasehold Improvement & Restaurant Property – Will revert from the 15-year write-off back to 39-year depreciation.
- Sec. 179 Deduction – Will revert to the reduced 2007 levels.
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