Unless you have been living in the wilderness, you know that Congress passed, and the President signed, the Budget Control Act of 2011 providing for an initial $1 Trillion round of deficit reduction over fiscal years 2012 through 2021. There is an additional reduction of $1.5 Trillion required over the same time period pursuant to a procedure involving a newly established “Joint Select Committee on Deficit Reduction” (the “JSC”).
In a recent publication the Research Institute of America said: “It is hard to say what, if anything, the JSC might recommend by way of tax changes. But looking to past proposals:
- Businesses may have to give up costly tax breaks, such as accelerated depreciation, the domestic production activities deduction, and the election to use the last-in, first-out (LIFO) inventory accounting method. Industries (such as oil and gas) may have to give up some of their tax preferences. In return, corporations may wind up with a modestly lower top rate;
- In the international arena, a territorial tax regime may be adopted, there may be a repatriation holiday to induce multinationals to bring home over- seas profits, and there may be crackdowns on transfer pricing tax strategies; and
- Individuals may find cutbacks in key tax breaks, such as the mortgage interest deduction, in exchange for flattened and lowered tax rates.
Other issues the JSC will have to deal with include: the post-2012 expiration of the Bush-era income tax cuts (including the current rate schedules, and low tax rates for long-term capital gains); the expiration of the Bush-era rules for estate and gift taxation; and the transfer tax rules in the 2010 Tax Relief Act, effective for estates of decedents dying, gifts made, or generation-skipping transfers made after Dec. 31, 2012.”
If the JSC process does not result in legislation being approved by the end of this year, across the board reductions must be implemented starting in 2013. Cuts would be split 50/50 between defense and domestic spending.
For further information regarding these matters, please contact Mr. Castelli at 248.740.5668 or via email.