What Happens When a Lame Duck Meets a Fiscal Cliff?
10 (Tongue in Cheek) Predictions
Last year, I wrote a blog about the congressional “super committee” created by the Budget Control Act of 2011 to deal with government’s immense debt and the deep deficit hole in which we find ourselves. The super committee of 12 members of Congress was unable to reach consensus on specific ways to wrestle with our unruly fiscal problems. That means, come this January, Washington will face $1.2 trillion in automatic spending cuts (known as sequestration).
What else is staring at us as we head towards the winter solstice? Not too much - there's the 2011 extenders including the AMT patch, 2012 extenders, the 2% payroll tax cut, the debt ceiling limit, expiration of the Bush tax cuts, and oh, the grim reaper is chasing the estate tax yet again. Did I also mention that we have a very contentious presidential election leading up to a lame duck session of Congress? Federal Reserve Chairman Ben Bernanke calls it a “fiscal cliff.” I'm exhausted just thinking about it!
So what’s my best guess as to how this plays out? Here goes, but remember, Circular 230 or some such thing advises not to rely on this information for wagering purposes.
- The President and Congress agree to strike the 2% payroll tax cut; come Jan. 1, the full 6.7% Social Security tax rate will reappear.
- The presidential race ends in a dead heat and the outcome is delayed pending results in Ohio.
- On Nov. 13, Congress will begin a contentious and raucous lame duck session. There will be plenty of partisan posturing and much invective, but nothing much is accomplished except...
- In late-November, Congress and the Administration agree to a 6-month extension of the debt ceiling (approximately $16 trillion).
- With no action on the expired and expiring provisions, the IRS Commissioner will express his concerns over tax season readiness and resign in mid-November. (Ed, aren't you forgetting the Commissioner's 5-year term expires in November?!)
- With much concern for the impending tax season from . . . OK, OK, let's just call it “Taxmageddon,” the AICPA unveils its fiscal cliff webpage that offers tax, financial planning, and health care reform resources, as well as expanded Interactive Tax Checklists, and other practice management suggestions (partnering with PCPS, we also offer analgesics in large and discounted quantities).
- In mid-January, federal agencies will unveil their sequestration ideas; everyone will say they are unfair.
- On Feb. 4, 2013, Congress will enact a one-year extension for most of the 2011 extenders (10 to 15 “economic incentive” provisions, such as rapid write-offs for North Carolina-based NASCAR racing facilities, will die a quiet death). The expired Bush tax cuts are also extended one year; all the extensions are retroactive to Jan. 1, 2012.
- The IRS immediately publishes the final forms and completes programming; commercial vendors follow suit. Tax season finally begins.
- For the rest of 2013, Washington puts partisanship on a shelf and starts working to fix the debt problems. (A guy can dream, can’t he?)
And so it all begins again; so many temporary extensions and not enough permanent solutions. And you were wondering about all the quacking.
Edward S. Karl, CPA, Vice President of Taxation, American Institute of CPAs.