Like you, I was appalled at Congressional behavior over the past several weeks. We shouldn’t have been surprised, however. Congress has behaved this way for the past two years. Although we finally got legislation that purports to reduce the federal deficit by $1 trillion over fiscal years 2012-2021, that’s only part of the story. What we witnessed in this bitter partisan battle is just the start of more Congressional battles that will continue through 2012 (and beyond depending on the outcome of the 2012 elections).
I haven’t seen the text of the Act yet, but here is what I know at this point. The Act creates a Joint Select Committee on Deficit Reduction (JCS). The committee’s charge is to find another $1.5 trillion in deficit reductions. The committee is to “provide recommendations and legislative language that will significantly improve the short-term and long-term fiscal imbalance of the Federal Government.” Everything appears to be on the table, including tax reform (read increase) and entitlement reform (read decrease). The JCS will be comprised of 12 members plus two co-chairs. Three members each will be appointed by Harry Reid, Mitch McConnell, Eric Cantor, and Nancy Pelosi. Reid and John Boehner will each appoint one co-chair. The result will be a highly politically charged group.
The battle begins immediately. Here’s the timetable.
- No later than August 16, 2011 the committee members and co-chairs must be appointed.
- No later than September 16, 2011 the JSC must hold its first meeting.
- No later than October 14, 2011 House and Senate committees may transmit to the JSC their recommendations to meet the JSC goals. You can bet the JSC will be flooded with recommendations.
- No later than November 23, 2011 the JSC must vote on a report of its recommendations, as well as Congressional Budget Office estimates of the recommendations. The JSC report must also contain a statement of the deficit reduction to be achieved over the years 2012 – 2021 and legislative language to support the committee’s recommendations. A majority of the committee members must approve the report, its recommendations, and legislative language. In addition, each committee member and co-chair may file his or her own additional comments within 3 days of the final committee vote on its report.
- No later than December 2, 2011, if a majority of the JSC approves the report and legislative language, the report and recommended language must be submitted to Congress and the President and Vice-President.
- No later than December 23, 2011, if a majority of the JSC approves the report and legislative language, it must be voted on by both the Senate and the House. No amendments may be considered. Merry Christmas!
If a majority of the JSC members fail to approve a report and legislative language, across-the-board spending reductions must be implemented beginning in 2013 (note that this will begin after the 2012 elections). The spending reductions will be split equally between defense and non-defense spending. It is not clear to me what happens if a majority of the JSC members approve a plan, both houses of Congress pass it, but the President vetoes it. Perhaps the across-the-board cuts begin in 2013 as if the JSC failed to approve the plan.
There are a host of tax implications to this process. Some favorable tax provisions are due to expire at the end of 2011. What will become of them? The Bush-era tax cuts and the current estate, gift, and generation-skipping tax provisions are due to expire at the end of 2012. Hide and watch to see if they are extended or made permanent. What an interesting election season we will have in 2012!
I will continue to monitor the outcome of this process and post additional comments as appropriate.
Ronnie
Copyright 2011, Ronnie C. McClure, PhD, CPA
