Congressional Super Panel to debate tax reform behind closed doors
by AccountingWEB on
By Ken Berry
All of the members of the Super Panel have been seated. Now we'll have to wait to see what they work out behind closed doors.
On August 12, 2011, Nancy Pelosi, the House democratic leader, appointed Representatives James Clyburn (D-SC), Xavier Becerra (D-CA), and Chris Van Hollen (D-MD) as the last three members of the bipartisan congressional committee on deficit reduction. They join three democrats from the Senate – Patty Murray (D-WA), Max Baucus (D-MT), and John Kerry (D-MA) – previously selected for the panel.
Likewise, the Republican side of the table has been filled with representatives Dave Camp (R-MI), Fred Upton (R-MI), and Jeb Hensarling (R-TX), plus senators Jon Kyl (R-AZ), Rob Portman (R-OH), and Pat Toomey (R-PA).
The special committee, which is meeting in secrecy, will begin its work after Labor Day. It has until November 23, 2011, to present recommendations to Congress. Although no one knows what solutions, if any, will emerge from these sessions, tax reform is certain to be on the agenda. The last major overhaul of the Tax Code occurred twenty-five years ago, and the time seems ripe for another.
Following are several hot-button items that are expected to be reviewed:
- Capital gains and dividends: After recent tax law extensions, the Bush-era tax breaks for capital gains and qualified dividends are supposed to sunset after 2012. Currently, net long-term capital gains and qualified dividends are taxed at a maximum tax rate of 15 percent (0 percent for taxpayers in the 10 percent and 15 percent ordinary income tax brackets). Beginning in 2013, the tax rate for long-term capital is scheduled to revert to 20 percent, while dividends will be taxed at ordinary income rates.
- Tax change for capital gains and dividends: Whether the scheduled tax change for capital gains and dividends should be treated as a tax increase or not often depends on ideological views. The panel could seek to preserve the status quo, allow the current tax breaks to expire, or find some middle ground.
- Individual tax rates: Currently, the six individual income tax rates range from a low tax rate of 10 percent to a top tax rate of 35 percent. If the Bush-mandated tax rates are allowed to expire, the lowest rate would revert to 15 percent, while the two top rates would climb to 36 percent and 39.6 percent beginning in 2013. Both the White House Deficit Commission and the Gang of Six in Congress have favored a simplified three-bracket structure with a top tax rate significantly lower than the current 35 percent.
- Corporate tax rates: Corporations are now taxed under an eight-rate structure, including a top tax bracket of 35 percent, but with a portion of corporate income being taxed at 39 percent. Various proposals would simplify the tax rate structure for corporations by reducing the number of brackets, eliminating the 39 percent tax rate bump, or imposing a flat tax rate on all corporate income.
- Itemized deductions: Some of the "sacred cows," such as deductions for mortgage interest, charitable donations, and state and local taxes, could be modified or eliminated. One proposal would install floors for these deductions based on adjusted gross income (AGI), comparable to the limits already imposed on medical and miscellaneous expense deductions.
- Alternative minimum tax (AMT): This stealth tax was designed to ensure that wealthy individuals pay their fair share of income tax, but its application has vastly exceeded its original intent. Some proposals would modify the AMT by adjusting the exemption amounts or rates while another would eliminate it entirely.
This is just a handful of the tax-related provisions the Super Panel is likely to examine. Whether significant tax reform will eventually be enacted or not remains to be seen. In any event, be prepared to react quickly on behalf of clients at the end of the year.
- Congress raises debt ceiling; extraordinary Special Joint Committee to propose further debt reduction measures
- Bill to raise debt ceiling includes spending cuts but could trigger tax reform
- The debt ceiling: Tax increases off the table
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2 weeks 5 days ago by claudilocks