The agreement earlier this month between Senators Reid and McConnell reopened the government for a few months, but it failed to resolve any of the issues that precipitated the shutdown in the first place.B Thereb s still no consensus on spending levels or tax policy beyond the end of the year.B Key dates in the agreement are:
- December 13th — Target for budget conferees to agree to a uniform budget
- January 15th — Current government funding resolution (CR) expires
- February 7th — Debt limit reached again
At this point, agreeing to a budget resolution would be a big deal.B Not only could it establish spending levels for next year, it also could put into place expedited procedures for tax and entitlement reforms stretching over the next decade and beyond.B For observers cheering for something big, including comprehensive tax reform, a successful budget conference is an essential first step.
The odds of a positive outcome, however, are slim.B The huge gap between Republicans and Democrats remains while the December 13th target date lacks any enforcement mechanisms — if the conferees fail to agree by that date, nothing happens.
Meanwhile, Senate Majority Leader Harry Reid and House Minority Leader Nancy Pelosi oppose any reduction in the sequester cuts that doesnb t include higher taxes — Reid went so far as to say people b wantb to pay more taxes — while Senate Budget Committee Ranking member Jeff Sessions has made clear he opposes swapping the sequester for similar sized entitlement cuts.
So those folks hoping for a narrower deal will just have to wait, too.
On the tax front, Chairman Dave Camp continues to push his leadership, committee and conference to support a comprehensive, budget neutral package by the end of the year.B Web re on record strongly supporting this effort, and it appears heb s making progress.B Meanwhile, Finance Chair Max Baucus plans to begin releasing b discussionb drafts outlining various parts of his plan as early as next week, with the first release likely focused on international reforms. Thatb s good news and certainly a step forward.
But the big barrier holding tax reform back has less to do with drafts and House Republicans, and more to do with basic objectives.B Senate Majority Leader Harry Reid and the President continue to insist on a package that raises taxes, which obviously is a non-starter with the House.B Until they work out the top line number, getting an agreement on what the underlying policies will look like is next to impossible.
Meanwhile, thereb s a long list of tax provisions set to expire at the end of the year, including the higher limits ($500,000) on Section 179 expensing, the R&E tax credit and the 5-year holding period for built-in gains.B Until the budget and tax reform questions are resolved, thereb s little appetite on the Hill for discussing the prospects for these provisions, so everything is on hold. As the Hill wrote this week:
Renewal of a package of tax breaks for businesses and individuals worth tens of billions of dollars has become something of a holiday tradition in Washington. Each November and December tax writers battle over which benefits are really worth keeping while business lobbyists launch fevered campaigns to keep their tax bills low.
In the end, most of the package is often renewed, attached to some other must-pass piece of tax legislation.
But this year, lawmakers will likely not even go through the motions.
Members of the Senate Finance and House Ways and Means Committees expect to spend all of their remaining time this year working on drafting comprehensive tax reform legislation. The extenders package would be a distraction from that work, they say.
So the December target date for producing a budget resolution appears to be less of a deadline and more like a warning track, letting policymakers know that the end of the year is fast approaching and that thereb s limited time to move forward on tax reform or, failing that, extenders.
It doesnb t have to be that way, of course.B Outside forces could emerge in the next two months to bring the two sides together.B For example, we always thought there was an inverse relationship between the success of the Affordable Care Act and the prospects for tax reform.B The worse the roll out, the more motivated the Obama Administration would be to change the subject and work with Congress on comprehensive reform.
Itb s hard to imagine a worse roll out than what web ve seen over the past month, and yet the prospects for common ground between the House, Senate, and Administration donb t appear to be increasing.B Based on his comments in Boston this week, the President certainly doesnb t seem to want to change the subject.B Maybe it will take a little time. Or maybe nothing will happen.B Right now the latter appears to be the most likely outcome.B Given how much work Chairman Camp has put into the tax reform effort and how much a well-thought out plan is needed, that would be a shame.