Budget Control Act

THE TAX ATTIC with Jerry Coon

August 18, 2011 // 0 Comments

Looking at how to cut the deficit Last week, I began discussing the implications of what our Congress has wrought by passing the Budget Control Act. The Act’s intention is to reduce the deficit by a total of $2.5 trillion over the next 10 years. They are going about this in two ways. Part A calls for trimming $1 trillion of expenditures over that 10-year period. Part B calls for creating a bipartisan, joint, 12-member committee that will find ways to cut an additional $1.5 trillion off the deficit over that 10-year time frame. This Joint Committee on Deficit Reduction must bring their recommendations to Congress by November 23, and Congress must approve their recommendations by December 23 or else. The “or else” part is that automatic spending cuts will kick in if the Joint Committee doesn’t bring recommendations or if Congress doesn’t pass the recommendations they do bring. These automatic spending cuts have not been defined as yet, but they are supposed to be so onerous that the Joint Committee and the whole Congress will do just about anything to not allow the cuts to take effect. It sounds like this 12-member committee is going to be sitting in a very powerful position. What they propose will most likely go into effect. It sounds like a mini-Supreme Court. In theory, at least, they will answer to no one. What will their recommendations look like? It is important to remember that this is a 10-year plan and there are some significant events that occur within that 10-year time frame. The Bush Tax Cuts that were extended at the end of 2010 expire on December 31, 2012. The committee will most likely recommend that most of the tax cuts not be extended after 2012, especially those provisions affecting “rich” taxpayers—those with incomes above $200,000 for singles and $250,000 for families. However, that won’t raise $1.5 trillion in 50 years, let alone 10 years, so what else will the committee recommend? The big dollars can be saved by eliminating select tax deductions. For many taxpayers, this is will be a de facto tax increase. In government language, these tax deductions are considered tax expenditures, i.e. the government is spending money when we taxpayers save tax dollars by claiming […]