Budget Super Committee Introduces Tax Uncertainties

The Budget Control Act of 2011 was signed into law on August 2, 2011, narrowly averting a possible default on repaying U.S. government obligations.  The Act raises the debt limit by $0.9 trillion plus an additional $1.2 to $1.5 trillion depending upon the actions of the super committee.  The Act reduces spending by $0.9 trillion over the next 10 years and creates a 12-member, bi-partisan joint "super" committee charged with making recommendations to cut an additional $1.5 trillion from the deficit over 10 years.  The committee may recommend any combination of spending cuts or tax increases.  If legislation is not enacted by January 15, 2012 to cut the deficit by at least $1.2 trillion, then any shortfall must be taken equally out of defense and social spending by January 1, 2013.  This latter provision is so distasteful to each political party that it is seen as the vehicle to force through an agreement from the super committee.

Super committee appointments are to be made by August 16, 2011 with the first meeting held no later than September 16, 2011.  The committee must vote on their conclusions no later than November 23, 2011.  If a majority votes in favor, then legislative language must be reported out no later then December 2, 2011.  Both the House and the Senate must vote on the proposal by December 23, 2011 with no amendments considered.  The committee may rely on previous proposals to reform spending and taxation due to the time constraint it must work under.  See prior postings dated May 24, 2011, December 6, 2010, and August 30, 2010 for a discussion of these proposals.

When Congress extended the Bush tax cuts at the end of 2010, it was thought that the tax rates could be counted on for at least two more years.  Now with the super committee, its proposals could have effective dates as early as November 2011 rather than January 2013!  It is hard to know what the actual tax proposals will be, if any.  There could be a loss of deductions in exchange for lower tax rates.  There could be an increase on just the so-called "wealthy."  The super committee structure creates uncertainties for taxpayers and businesses with respect to tax planning and budgeting.  In this very politicized environment, to paraphrase Former Speaker Nancy Pelosi when speaking of the health care reform bill, Congress will need to pass the law before we can find out what's in it!