From Carol McAtee’s CPA firm in St. Petersburg, FL – On August 2, the Budget Control Act was signed into law. The new law raises the debt limit to avoid a projected default by the government, and creates a bipartisan joint select committee to create deficit reduction measures. The joint committee’s mandate under the new law is to draft additional deficit reduction legislation to be voted on by year end.
Under the new law, Democrats and Republicans reached an agreement on a deficit reduction plan that would cut spending but includes no revenue raisers at this time. The first part of the agreement is projected to cut approximately $1 trillion in federal spending over 10 years. The second part of the agreement creates a 12 member bipartisan joint committee, which has the goal of providing specific measures to reduce the federal deficit by at least $1.5 trillion over 10 years.
At this time, it is unclear what Tax Code changes may be addressed by the joint select committee. In recent months, tax change proposals from both sides have included both bold sweeping tax proposals and more limited loophole-closing recommendations. The fact that major tax reform is now being considered in connection with solving long term deficit problems, indicates a desire by many in Washington to seriously consider fundamental tax law changes, as opposed to just fine tuning around the edges.
Some of the recent tax changes proposed with the recent deficit debate include:
- Three individual income tax brackets as low a 8, 14, and 23 percent,
- Increases in the capital gain and dividend tax rates,
- Elimination of the alternative minimum tax (AMT),
- Reduction of key deductions relating to mortgage interest, charitable contributions and medical coverage expenses.
- Elimination of deductions for state and local taxes and miscellaneous itemized deductions.
- A single corporate income tax rate, as low as 23 percent.
- Reduction in key business deductions and incentives such as those relating to oil and gas benefits.
- Switching to a territorial based international tax system for businesses.
ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.