For those who had hoped that the Joint Select Committee on Deficit Reduction, aka the Supercommittee, would find a way to reduce the deficit, the announcement that they had failed to reach an agreement came as a disappointment.
Formed with the task of reaching a bipartisan solution, as opposed to the usual deadlock in Congress, the effort was probably doomed from the start by the partisan way in which committee members were selected.
Nevertheless, they held meetings, launched a Web site, and issued press releases. The final statement they issued last week said they had reached the conclusion that “it will not be possible to make any bipartisan agreement available to the public before the committee’s deadline.”
“The hope was that they would have reached a deal on the big picture items, such as an agreement to reduce the deficit, with fundamental tax reform as part of it,” said Marc Gerson, former Majority Tax Counsel to the House Ways and Means Committee. “Now the attention will be turned to a number of items that are high priority for both the Administration and Congress. These include the extension and perhaps an expansion of payroll tax provisions, as well as some non-tax items.”
“There’s talk of extending unemployment insurance benefits,” he said. “And there’s a lot of pressure to pass the ‘Doc Fix’—to prevent reduction of Medicare physician reimbursement rates. These might be big enough and time sensitive enough to provide a legislative vehicle to pass tax provisions that are also priorities.”
These might include an AMT patch, the extension of 100 percent bonus depreciation, and a renewal of the tax extenders package, according to Gerson.
“The notion is that the high-priority items might provide traction for the effort to add tax provisions,” he said. “Items in the extenders package include the state sales tax deduction and the R&D credit. The hope is that these can be extended before the end of the year so they wouldn’t have to be enacted retroactively.”
Having a seamless extension is important for planning capital expenditures and the R&D budget, he observed.
“For some taxpayers, there’s also a financial statement impact,” Gerson noted. “For example, if a taxpayer is taking advantage of the R&D credit, the fact that the credit expires at the end of the year is significant. Even though you might assume the provisions will be extended, or restored if they expire, taxpayers have to treat those provisions as expired on their financial statements.”
“The point is that some tax items are in the mix for the end of the year,” Gerson said. “Payroll tax and the extenders have the most widespread interest. Congress is back in session, and could continue through the holidays.”
As for the Supercommittee, it wasn’t all in vain. “They spent a lot of time and had some good ideas,” Gerson said. “Some of their proposals made their way out, and they will continue to inform the process. Given the abbreviated time period they were in existence, it would have been very difficult to address fundamental tax reform.”
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