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The Budget Control Act of 2011
By Children’s Home Society of Florida Foundation
Speaking in Chicago last week, Senate Whip Richard Durbin (D-IL) proposed a change in the plan to reduce spending starting January 1, 2013. Under the Budget Control Act of 2011, substantial spending cuts in both defense and Medicare providers will commence on that date. These cuts together with potential tax increases have been described as a “fiscal cliff” that could send the nation back into recession.
Spending Cuts
The spending cuts are required because the Joint Congressional Committee in 2011 was unable to agree on a budget and tax plan. The anticipated spending cuts are designed to reduce costs by $1.2 trillion over the next decade.
Sen. Durbin proposes delaying the spending cuts for a term of six months. The Budget Control Act would be modified to allow the Senate Finance Committee and the House Ways and Means Committee an opportunity to develop a new plan.
Under Durbin’s proposal, the two committees must submit bills by June of 2013. The plans must total $4 trillion in budget savings. There would be $1.33 trillion in increased taxes and $2.67 trillion in budget reductions.
Assessment
Following hearings by both committees, the bill would need to be submitted to a conference committee. After passage by both the House and the Senate, the $4 trillion plan could be signed by the President. If all of those steps were completed by June 30, 2013, the mandatory budget cuts would not take place. They would be replaced by the agreements for tax increases and budget cuts in the new law.
Editor’s Note: The mandatory budget reductions in defense and Medicare take effect in 2013 because the Joint Congressional Committee was unable to agree on the balance of tax increases and budget reductions. There will be an opportunity for enacting new tax and budget provisions in the November session following the elections. Because the time is quite short for writing major legislation, many Senators and Representatives would like to defer action to 2013. However, there is a general reluctance to agree on the level of tax increases and budget reductions necessary for a compromise bill.
Conclusion
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Filed under: Health Law & Policy, Taxation | Tagged: Budget Control Act of 2011, Children's Home Society of Florida Foundation, Is There a Six Month Deferral for the Fiscal Cliff?, Richard Durbin |
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Fiscal Cliff Looming as Congress Adjourns
As the November election nears, Congress has adjourned to permit Senators and Representatives to campaign full time.
On January 1, there is a scheduled massive tax increase and spending cut that Washington commentators are calling the “fiscal cliff.” Department of Defense and Medicare spending cuts and tax increases on most taxpayers lead the Congressional Budget Office (CBO) to warn that the nation could return to recession in 2013.
On September 19, Federal Reserve Chair Ben Bernanke testified before the Senate Finance Committee. He cautioned the Senators to be careful in actions to address the fiscal cliff. The Senate Finance Committee is preparing for a November “lame-duck” session following the election. Bernanke is concerned that any substantial action by Congress during that time could hinder an already slow recovery.
Sen. Kent Conrad (D-ND) has led a “Gang of Six” Senators from both parties who have been seeking budget solutions for the past two years. Conrad advocates a “grand bargain” for the November legislative session. He suggests that the tax increases and spending reductions be deferred for six months to allow Congress to create a bipartisan plan with a $4 trillion target. The plan would include a combination of targeted tax increases and spending reductions, including limits on the growth of entitlements.
Senate Majority Leader Harry Reid (D-NV) stated, “I do not believe that we’re going to go over the fiscal cliff. Everyone knows what needs to be done.”
However, Speaker of the House John Boehner (R-OH) continues to maintain that he is “not confident” that Congress will be able to craft a major budget compromise.
In the rush to adjourn, the Senate did not vote on the Family and Business Tax Cuts Certainty Act of 2012 (S. 3521). This bill would extend most of the tax provisions that have not been passed for 2012. While there has been no Senate vote on the bill, it is expected that the tax extenders (including the IRA charitable rollover) will be part of the November legislative process.
Editor’s Note: Congress will now wait for the election results before attempting to determine the course for taxes and spending during the lame-duck session. There is a general agreement to extend the tax cuts for the middle-class. However, there is great uncertainty about extending the current tax rates for those with higher incomes. In addition, not all of the tax extenders will be passed for 2012. While many tax extenders are likely to be part of the November bill, it now seems probable that some of these tax provisions will not be extended. The current Senate list of tax extenders (which includes the IRA charitable rollover) seems likely to be the list that may be enacted.
Source: Children’s Home Society of Florida Foundation
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For those in the business of providing investment advice, the situation in the nation’s capital is getting serious.
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http://www.financial-planning.com/news/Lawmakers-Mull-Capital-Gains-Rates-as-Fiscal-Cliff-Looms-2680955-1.html?ET=financialplanning:e11667:86235a:&st=email&utm_source=editorial&utm_medium=email&utm_campaign=fp_alert_092112
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Going over the “cliff” would be great for the US balance sheet but the medicine would most likely give us 1937, which was a major relapse in the economic recovery from the Great Depression.
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