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Progress in Congress - An Overview of Tax Reform to Date

Tax

By Paul Matvey

As we pass the mid-point of the 2014 tax season, it’s an opportunity to pause and take a look at what’s happening currently with tax reform.  While our legislators consistently promise or threaten tax reform, depending upon your perspective, recent events in Congress suggest they really mean it this time.  So, even if only for the sake of levity as we struggle to understand and implement the repair regulations and net investment income tax provisions, let’s look at the Congressional tax reform progress.  But first, a riddle – is “progress in Congress” an oxymoron?

Before getting to tax reform, Washington teased us with a budget deal in January.  The Ryan-Murray budget deal was reached and prevented another government shutdown, and purports to cut $23 billion from the federal deficit and bring to an end the huge sequestration cuts, some of which targeted the Pentagon over the next two years.  Here’s what the authors had to say about their handiwork:

“This budget is a step in the right direction,” Rep. Paul Ryan, (R-Wisconsin), GOP Chairman of the House Budget Committee said, “It is a clear improvement on the status quo.”  It cuts taxes in a smarter way – and it reduces the deficit without raising taxes,” Rep. Ryan added.

“We have broken through the partisanship and the gridlock, and we have reached a deal,” Sen. Patty Murray (D-Washington), who heads the Senate Budget Committee, said at the news conference with Rep. Ryan.  “Over the past few years, we have lurched from crisis to crisis.”

The new $85 billion deal was called a “step in the right direction,” by Rep. Ryan and one that would avoid threats of another government shutdown in January, when current funding expires, and in October next year, when the next fiscal year starts.

“What am I getting out of this?  I’m getting more deficit reduction.  So the deficit will go down more by passing this than if we did nothing,” Rep. Ryan told a news conference.

The top Republicans in Congress said that while the bipartisan budget deal is “modest in scale, “ it represents a positive step forward.

Speaker of the House of Representatives John Boehner also said the agreement would help cut the record budget deficit “without tax hikes that would hurt our economy.”

Sen. Rob Portman (R-Ohio), a member of a larger congressional budget panel said he is pleased the deal will help avoid a government shutdown.

“I’m happy we’re going to avoid raising taxes, going to stay within the budget caps and, in addition, have some deficit reduction,” Sen. Portman said.

President Barack Obama praised the budget deal as a “good first step” to overcome recurring crises that have wracked the government since 2011.

“It’s a good sign that Democrats and Republicans in Congress were able to come together and break the cycle of short-sighted, crisis-driven decision-making to get this done,” the president said of the agreement that avoided a disastrous repeat of a government shutdown that paralyzed Washington in October.

The President signed the bill, marking the first time since 2009 that Congress has enacted a budget bill.

But, then came the Senate Budget Committee’s (“SBC”) analysis, or House Minority Leader Nancy Pelosi (D-California) once said, “we’ll just have to pass the law to see what’s in it.”

The deal actually raises spending $63 billion in 2014 and 2015.  In return for that spending hike, the deal creates $85 billion of savings on paper, $34 billion of which actually comprises revenue increases, and $51 billion comprises spending reductions.  So the bill actually increases spending ($63 billion of hikes versus $51 billion of cuts).  But it gets better, $47 billion of the claimed $85 billion is scored to occur in 2022 and 2023 and is supposed to come from putting caps on entitlements.  SBC Chairman Jeff Session (R-Alabama) politely said that these savings are of “dubious validity.”  Isn’t a bipartisan Washington wonderful?

Not to be outdone, and only two months after signing the Ryan-Murray caps into law, President Obama proposed his own budget.  His fiscal year (FY) 2015 budget would burst through those statutory limits and spend an additional $791 billion, according to a Senate GOP analysis of the president’s budget proposal.  Senate Budget Committee ranking member Jeff Sessions, (R-Alabama), said that it calls for spending $56 billion more than the Ryan-Murray limits.  “The president’s budget then calls for another huge tax increase of well over $1 trillion in order to increase spending by almost $1 trillion,” said Sen. Sessions in a recent statement. 

According to SBC Republicans, the president’s plan projects mandatory spending growth of 78% and Medicare and Medicaid spending growth of 73% over 10 years.  Means-tested welfare and poverty spending, which now total $750 billion and is the largest federal expense, “continues to soar without reform.”

Sen. Sessions said that President Obama’s budget, by his own numbers, would add more than $8 trillion in new debt, bringing the total from approximately $17 trillion to $25 trillion.

Oh yes, tax reform.  Fortunately, I’m out of space.  Tune in next time to see how the tax reform work of former Senate Finance Committee Chairman Max Baucus landed him the ambassadorship to China and how his proposals compare to that of the House Ways and Means Committee Chair, Rep. Dave Camp (R-Michigan).

Who’s hoping for the return of gridlock?

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