Capital Corner: “Public Enemies”

Jim Brandenburg, CPA, MST,  Tax Shareholder   email | bio
December 2011

Yes, a lot of letters and you may not be sure what they mean. Perhaps there is then some parallel with the just completed work of the "Super Committee." There was a lot of talk and a lot of rhetoric, but you may not be sure what got done. As you may recall, this committee (actually its proper and full name is The Congressional Joint Selection Committee on Deficit Reduction) was created this summer by Congress and the president as part of the deal to raise the atrocious debt ceiling in order to reduce the projected budget deficits over the next decade. The committee was charged with coming up with additional reductions in the budget deficit of $1.3 trillion in this period via spending cuts and/or additional revenue through tax hikes. If a consensus plan was developed by this committee, the plan would need to pass separate votes in both the House and the Senate.   Remember, the debt ceiling agreement reached this summer that established this Super Committee also had default measure. If the committee could not agree or come up with the stipulated deficit savings, then automatic budget reductions would be triggered. These ferocious reductions would be split between both military spending and domestic programs.  (Click here to read the Capital Corner: The State of the Super Committee article that was originally published in October 2011.)

So what are some Congressional options?

• Carrying out automatic spending cuts.  The pressure will be kept on Washington as investment rating groups monitor the efforts at enforcing the required spending reductions.  Lobbying efforts from possible effected recipients of this spending will also intensify.  The timeframe for reaching the details of the spending reductions is not finalized yet, so based on its track record, it is likely Congress will push off making any real decisions as long as possible.
   
• Payroll tax changes.  A year ago at this time, with expiring tax rates and provisions looming, Congress enacted significant changes.  As the days wind down in 2011, there are fewer "tax emergencies" that Congress can address.  One such measure is the across-the-board, 2 percent payroll tax savings enacted last year.  This provision only had a one-year window, and unless Congress acts, all workers will see a payroll tax hike in 2012.
   
• Millionaire's Surtax.  This proposal would impose surtax on taxpayers with income over $1 million, and it has been introduced in several formats and attached to various bills.  It is not necessarily directed to appease the "occupy protesters," but it still has political impact in legislators.  Despite these proposals, it is likely to be pushed more in the Senate.  It is unlikely such legislation will pass through the House.
   
• Depreciation Changes.  As you may know, the 100 percent bonus depreciation provision applies to any qualifying additions made through December 31, 2011.  Any additions after that time in 2012 will be subject to the 50 percent bonus depreciation.  Congress may move to extend this for another year but may couple it with an extension of unemployment benefits.  It is likely these depreciation and unemployment items will be debated in December, but it is uncertain what, if anything, will ultimately be passed.

We will see what happens.  It appears this December will be less eventful than last December from a tax standpoint, but it is not unusual for much of the legislation in a year to get pushed through at the end of the year.  Often, items get tucked into bills without much debate.  Um diddle diddle diddle um diddle ay... (That's Congressional-speak for Stay Tuned...)