A bipartisan group of eight senators has been working for months to develop a plan to deal with the impending expiration of current tax provisions and to avert the sequestration outlined in the Budget Control Act passed on August 2, 2011.
The tax provisions that will expire were first passed by the Bush administration and then extended by President Obama. These include the following:
- The Bush tax cuts, which reduced income taxes by reducing tax rates, reducing the marriage penalty, repealing limitations on personal exemptions and itemized deductions, expanding refundable credits and modifying education tax incentives
- The Bush tax cuts also reduced estate tax liabilities by increasing the amount of an estate exempt from taxation and by lowering that tax rate
- The alternative minimum tax (AMT) patch, which, by increasing the amount of income that is exempt from the AMT and allowing certain personal credits against the AMT, prevents an estimated 26 million additional taxpayers from owing the AMT
- The payroll tax cut, which reduced an employee’s share of Social Security taxes by two percentage points
- A variety of previously extended temporary tax provisions commonly referred to as “tax extenders,” which affect individuals, businesses, charitable giving, energy, community development and disaster relief
The Congressional Budget Office (CBO) estimates that extending these provisions through 2022, except for the payroll tax cut, which CBO assumes expires as scheduled at the end of 2012, would reduce revenues by $5.4 trillion between 2013 and 2022. Specifically, over this 10-year budgetary window extending the Bush tax cuts and extending the AMT patch would reduce revenues by $4.6 trillion, while extending the tax extenders would reduce revenues by $839 billion. The cost of extending the payroll tax cut for one year (2012) was estimated to be $114 billion over the 2012-2022 budgetary window.
Congress has previously extended expiring provisions en masse in one legislative vehicle. Several bills have been introduced in the 112th Congress to extend certain provisions, including some or all of the Bush tax cuts and the AMT patch as well as certain temporary expiring provisions.
In addition to the expiring tax provisions the Senate group is looking to avert the automatic, across-the-board spending cuts known as sequestration. Because the Joint Select Committee on Deficit Reduction did not develop legislation needed to achieve the $1.2 trillion in deficit reduction set in the BCA, and because Congress did not subsequently enact such legislation by January 15, 2012, the sequestration is scheduled to trigger a series of automatic spending reductions intended to achieve that level of savings over the FY2013-FY2021 period.
OMB provided Congress with a breakdown of exempt and non-exempt budget accounts, an estimate of the funding reductions that would be required across non-exempt accounts, an explanation of the calculations in the report. The sequestration would result in a 9.4% reduction in non-exempt defense discretionary funding and an 8.2% reduction in non-exempt nondefense discretionary funding, and would impose cuts of 2% to Medicare, 7.6% to other non-exempt nondefense mandatory programs, and 10% to non-exempt defense mandatory programs. OMB’s report to Congress is available online here.
Sequestration means that the U.S. Department of Agriculture and other discretionary areas of the federal government will face a cut of 8.2% in FY 2013. Agriculture Secretary Tom Vilsack has reportedly said that if sequestration comes into play, it is likely that there would be the need to furlough for meat and poultry inspectors. As a result, he said that a ripple effect on the meat-processing industry would most probably take place. He is quoted as saying to the Congressional Quarterly in an article published on Oct. 4, “A furlough really results in the potential of locking down or shutting down the processing because, if there is not an inspector there, you can’t keep the plant open.” In that same article Stan Painter, chairman of the union that represents the inspectors, said the priority for the USDA Food Safety and Inspection Service (FSIS) is to keep plants open and meat and poultry lines running. FSIS would have to move workers who test for foodborne pathogens to slaughter plant floors to check animal carcasses. Painter said he is concerned that sequestration could lead to less testing for salmonella in poultry or E. coli in beef.
Sequestration will also affect all students, including veterinary students, who take federal student loans made under the William D. Ford Federal Direct Loan (DL) program. Four types of federal student loans are made under the DL program: Subsidized Stafford Loans, Unsubsidized Stafford Loans, PLUS Loans, and Consolidation Loans. In general, for DL program loans made on or after July 1, 2010, the origination fee on Subsidized Stafford Loans and Unsubsidized Stafford loans is 1%, and the origination fee on PLUS Loans is 4%. The Department of Education does not currently charge an origination fee on Consolidation Loans. Under a sequestration order applicable to direct spending programs, origination fees on DL program loans made during the sequestration period would increase by the uniform percentage amount. The Office of Management and Budget (OMB) estimates a uniform percentage amount of 7.6% for nonexempt nondefense mandatory programs. Thus, the 1% origination fee on Subsidized Stafford Loans and Unsubsidized Stafford Loans and the 4% origination fee on PLUS loans would each be increased by 7.6%.
The Senate group, spearheaded by Mark Warner (D-Va.), is comprised of Majority Whip Richard Durbin (D-Ill.), retiring Budget Chairman Kent Conrad, (D-N.D.), Michael Bennet, (D-Colo.), Tom Coburn, (R-Okla.), Saxby Chambliss, (R-Ga.), Michael Crapo, (R-Idaho), and Mike Johanns, (R-Neb.), met behind closed doors at Mount Vernon on October 9-11. Although whatever fiscal overhaul proposal this group comes up with will have to be vetted by the leadership in both chambers of Congress, as well as the Senate Finance and the House Ways and Means Committees, it is thought that their work will lay the groundwork for a future deal following the November elections. No serious efforts to put it forward are expected until the outcome of the elections is known.
For more information please contact Gina Luke, assistant director, AVMA Governmental Relations Division.