Daily Tax Update - April 5, 2011: House Republicans Unveil Budget Plan To Slash $6 Trillion

HOUSE REPUBLICANS UNVEIL BUDGET PLAN TO SLASH $6 TRILLION IN SPENDING OVER NEXT DECADE AND SET TOP TAX RATES AT 25%:  Today, House Budget Committee Chairman Paul Ryan (R-WI) released the “GOP Path To Prosperity” which cuts approximately $6 trillion in federal spending over the next ten years.  Ryan said, “The president's recent budget proposal would accelerate America's descent into a debt crisis.  It doubles debt held by the public by the end of his first term and triples it by 2021.  It imposes $1.5 trillion in new taxes, with spending that never falls below 23% of the economy.  His budget permanently enlarges the size of government.  It offers no reforms to save government health and retirement programs, and no leadership.  Our budget, which we call The Path to Prosperity, is very different.  For starters, it cuts $6.2 trillion in spending from the president's budget over the next 10 years, reduces the debt as a percentage of the economy, and puts the nation on a path to actually pay off our national debt.  Our proposal brings federal spending to below 20% of gross domestic product (GDP), consistent with the postwar average, and reduces deficits by $4.4 trillion.”

  • According to Ryan, the major components include:
    • “Reducing spending:  This budget proposes to bring spending on domestic government agencies to below 2008 levels, and it freezes this category of spending for five years.
    • Budget enforcement:  This budget recognizes that it is not enough to change how much government spends.  We must also change how government spends. It proposes budget-process reforms—including real, enforceable caps on spending—to make sure government spends and taxes only as much as it needs to fulfill its constitutionally prescribed roles.
    • Tax reform:  This budget would focus on growth by reforming the nation's outdated tax code, consolidating brackets, lowering tax rates, and assuming top individual and corporate rates of 25%.  It maintains a revenue-neutral approach by clearing out a burdensome tangle of deductions and loopholes that distort economic activity and leave some corporations paying no income taxes at all.”
  • Ways and Means Committee Chairman Dave Camp (R-MI) issued the following statement in reaction to the Budget Resolution:  “The President’s budget proposes to raise taxes by $1.5 trillion and would continue Washington’s seemingly endless spending spree.  The Democrats’ refusal to even acknowledge the serious problems in Washington is only making matters worse – the debt is rising and that is hurting job creation.  Chairman Ryan’s proposed budget is just the opposite – it is honest with the American people about the tough choices that lie ahead; it reins in spending; and it balances the budget without raising taxes.  Importantly, the Ryan budget focuses on what matters most to families – jobs.  Currently, we have a tax code that hinders instead of helps job creation.  Simply put, the tax code is too costly, too complex and too burdensome for individuals, families and employers.  We must focus on getting Washington out of the way so employers can do what they do best – innovate and create jobs – and that starts with comprehensive tax reform.”

SENS. WYDEN AND COATS PLAN TO INTRODUCE COMPREHENSIVE TAX REFORM BILL:  The “Bipartisan Tax Fairness and Simplification Act of 2011” -- being offered by Senators Ron Wyden (D-OR) and Dan Coats (R-IN) -- would simplify the tax system, hold down rates for individuals and families, provide tax relief to the middle class, and create incentives for businesses to grow and invest in the United States. 

  • According to the summary, the bill would:
    • “For individuals: Wyden-Coats reduces the number of individual tax brackets from the current six to three: 15 percent, 25 percent, and 35 percent and eliminates the Alternative Minimum Tax completely.  Middle-class and low-income taxpayers will benefit from Wyden-Coats’ near tripling of the standard tax deduction, which will not only reduce tax bills but relieve Americans of the stress and responsibility of maintaining the records and receipts needed to document itemized deductions.  These simplifications alone will make it possible for most taxpayers to file a simple one-page 1040 form that most Americans will be able to fill out in less than an hour.  Moreover, by eliminating tax breaks and loopholes that allow some Americans to pay less than others, Wyden-Coats is able to hold down rates for everyone.  According to the Tax Policy Center, most families making up to $200,000 a year will pay the same or less in taxes under Wyden-Coats than they do today.
    • For businesses: Wyden-Coats takes steps to level the playing field and make investment in the United States more attractive to businesses of all sizes.  To encourage small business growth, more than 95 percent of small businesses – those with gross annual receipts of up to $1 million – will be able to permanently expense all equipment and inventory costs in a single year.  Wyden-Coats also makes American companies more competitive by reducing the top corporate tax rate and replacing the existing six corporate rates and eight brackets with a single flat rate of 24 percent.  Currently, US corporations pay the second highest tax rate among industrialized countries.  Under Wyden-Coats, companies investing in the United States would pay less than they would in Canada, Germany, France and many other US trading partners.” 
  • Additional information can be accessed here.

Notice 2011-32 designates the Japan earthquake and tsunami occurring in March 2011 as a qualified disaster for purposes of § 139 of the Internal Revenue Code.

H.R.1347: To combat international oil price fixing and to amend the Internal Revenue Code of 1986 to allow individuals a credit against income tax of at least $1,000 to offset high 2011 gasoline and diesel fuel prices.
Sponsor: Rep Chabot, Steve [OH-1] (introduced 4/4/2011) Cosponsors (None)
Latest Major Action: 4/4/2011 Referred to House committee. Status: Referred to the Committee on Ways and Means, and in addition to the Committee on Foreign Affairs, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned.

As provided for in Treasury regulations, advice (if any) relating to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement addressed herein.

Steptoe & Johnson LLP has one of the largest and most diverse law firm tax practices in the country.  The practice covers the entire spectrum of federal taxation, including representation of businesses before the Congress, Treasury and the national office of the IRS; transactional planning for domestic and multinational corporations; complex audit and controversy work for corporations and other business interests contesting IRS adjustments; litigation before the Tax Court, Court of Federal Claims, district courts, courts of appeals and the Supreme Court.  The firm's tax practice also encompasses all aspects of employee benefits (ERISA), executive compensation, tax-exempt organizations and charitable giving.  Steptoe has an extensive state and local tax practice, representing an array of business clients on complex sales and use tax, corporate income tax and property tax matters, both advising those clients and handling audits, administrative appeals, and litigation for them.  Read more information on Steptoe's tax practice.