Joint Select Committee on Deficit Reduction Ready to Start Work

On August 11th, the last three members of the Joint Select Committee on Deficit Reduction (JSC) were appointed by House Minority Leader Nancy Pelosi (D-CA).  The duties of the JSC are to “provide recommendations and legislative language that will significantly improve the short-term and long-term fiscal imbalance of the Federal Government.”

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On August 11th, the last three members of the Joint Select Committee on Deficit Reduction (JSC) were appointed by House Minority Leader Nancy Pelosi (D-CA).  The duties of the JSC are to “provide recommendations and legislative language that will significantly improve the short-term and long-term fiscal imbalance of the Federal Government.”

On August 11th, the last three members of the Joint Select Committee on Deficit Reduction (JSC) were appointed by House Minority Leader Nancy Pelosi (D-CA).  They are Representatives Chris Van Hollen (D-MD), Xavier Becerra (D-CA), and James Clyburn (D- SC).  The other nine committee members who were announced on August 9th, are:

  • Senator Patty Murray (D-WA),
  • Senate Finance Committee Chair Max Baucus (D-MT),
  • Senate Foreign Relations Committee Chair John Kerry (D-MA),
  • Senator John Kyl (R-AZ),
  • Senator Pat Toomey (R-PA),
  • Senator Rob Portman (R-OH),
  • Ways & Means Chair Dave Camp (R-MI),
  • Commerce Chair Fred Upton (R-MI), and
  • Representative Jeb Hensarling (R-TX).

The Budget Control Act of 2011, which was signed into law by President Obama on August 2, 2011, included an initial $1 trillion of deficit reduction over fiscal years 2012 through 2021 with no corresponding revenue hikes.  The Act also created the Joint Select Committee, whose members must devise ways to reduce the deficit by an additional $1.5 trillion over fiscal years 2012 through 2021.  In identifying these savings, the duties of the JSC are to “provide recommendations and legislative language that will significantly improve the short-term and long-term fiscal imbalance of the Federal Government.”  The JSC will hold its first meeting no later than September 16, 2011.

It is hard to say what, if anything, the JSC might recommend by way of tax changes; however,  based on past proposals, it is possible that:

Businesses may have to give up certain tax breaks, such as accelerated depreciation under Code Sec. 168, the domestic production activities deduction under Code Sec. 199, and the election under Code Sec. 472 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 overseas profits, and there may be crackdowns on transfer pricing tax strategies.

There could be a new round of loophole closers, such as a crackdown on “carried interest.”

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.

After signing the Budget Control Act of 2011 into law, the President reiterated his call for a balanced plan that includes revenue changes as well as spending cuts.  He remarked that “since you can’t close the deficit with just spending cuts, we’ll need a balanced approach where everything is on the table.  Yes, that means making some adjustments to protect health care programs like Medicare so they’re there for future generations.  It also means reforming our tax code so that the wealthiest Americans and biggest corporations pay their fair share.  And it means getting rid of taxpayer subsidies to oil and gas companies, and tax loopholes that help billionaires pay a lower tax rate than teachers and nurses …. Everyone is going to have to chip in. It’s only fair.  That’s the principle I’ll be fighting for during the next phase of this process.”

In their August 2nd press releases about the Budget Control Act of 2011, neither House Speaker Boehner (R-OH) nor Senate Republican Leader Mitch McConnell (R-KY) mentioned the possibility of tax reform as part of the deficit reduction package.