THE TAX ATTIC with Jerry Coon

Budget Control  Act contains two parts

Jerry Coon

I think God must be on my side. Allow me to explain. I have a streak of 50-plus years of never missing a baseball or softball game because of injury. I have missed games because of vacations, conventions and meetings, but none due to an injury. However, I strained my Achilles tendon two weeks ago, Tuesday, attempting to score from first base on a hit. It was a futile attempt to run faster than my body could run. I was still out. By the next day, I couldn’t bend my foot. Fortunately, Nancy, my receptionist, was willing to bring me coffee so I could quietly sit in my office for a few days. It wasn’t much fun. There was no way I could play by the following Tuesday, but I did plan to go and coach third base. This was going to be the first game I was going to miss because of injury. Darn.

Well, about the time the game was going to start, it started to sprinkle. Then it began to pour. It didn’t last long, but it was enough to swamp the field and get the game called off. It was rescheduled for two weeks later and I will be ready to play by then.

So, the way I see this is God rewards perseverance. I have played with various pulled muscles and sprains. A few years ago I put off having shoulder surgery until the season was over. Even I, however, couldn’t play with a tweaked Achilles tendon. It’s tough to walk, let alone run, when your foot won’t bend without shooting pains. Thank God just enough rain fell to keep my streak intact.

The Budget Control Act was signed by President Obama on August 2. We might be dealing with the ramifications of this action for the rest of our lives. It has the potential to be that big of a deal.

The Budget Control Act has a Part A and a Part B. In Part A, Congress agreed to cut $1 trillion in spending over the next 10 years. We know that Congress can play games with how they calculate that cut and what they call a “cut,” but it does seem like $1 trillion is a big enough figure that it may limit their gamesmanship. However, it should be noted that only $22 billion out of the $1 trillion will take effect in 2012. The remainder will come in later years. Adjustments to the tax code are not to be considered in the calculation. Those adjustments will come in Part B.

Part B creates a Bipartisan Joint Committee on Deficit Reduction. This committee will be very powerful. It will be consist of six members of the Senate and six members of the House of Representatives; equal numbers of Democrats and Republicans. These 12 people will be charged with finding a way to reduce the deficit by $1.5 trillion over the next 10 years. They will have carte blanche authority to bring before Congress tax reform in the magnitude that we haven’t seen since Ronald Reagan days.

If at least seven members agree on the provisions, Congress will be required to vote on those provisions as the committee has written them. Congress will be able to debate, but will not be able to amend nor filibuster the provisions. They must either accept or reject the provisions.

However, there will be a penalty if the committee can’t agree on provisions to reduce the deficit by the $1.5 trillion or if Congress rejects their proposals. The penalty is that automatic spending cuts will apply.

I have read the text of the bill and darned if I can see where they define exactly what those automatic spending cuts are. It does appear that Social Security, Medicaid, Medicare, child tax credit, earned income tax credit, and various programs helping needy families will not be cut. Other programs that could be cut would include defense funding and regulatory agencies such as EPA, FDA and TSA. The automatic spending cuts are supposed to be so distasteful to both the Republicans and the Democrats that the Deficit Reduction provisions will be considered the lesser of two evils.

These Part B recommendations must be presented to Congress by November 23 and Congress has until December 23 to give them the thumbs up or thumbs down. It is generally thought that the recommendations will be a combination of tax increases, tax decreases, and spending cuts for entitlement programs. The tax increases will come in the form of the elimination of deductions and modifying select credits. The tax decreases will come from a lowering of the overall tax rates. The entitlement spending cuts will come from various programs such as Social Security, Medicare and Medicaid.

Next week, I will discuss the specifics of these recommendations. I sincerely hope God is on their side in this process. I realize they don’t have a 50-year streak of balancing the budget at stake, but it’s very important to all of us that they do this properly. This is Jerry Coon signing off.

 

Jerry Coon is an Enrolled Agent. He owns

Action Tax Service in Rockford. Contact

Jerry at www.actiontaxservice.com.

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