Daily Tax Update - July 25, 2011: House & Senate Leaders Craft Separate Debt Plans

HOUSE AND SENATE LEADERS CRAFT SEPARATE DEBT PLANS:  House and Senate leaders unveiled competing plans to try to resolve the debt ceiling stalemate after weekend talks failed to produce a compromise.  House Speaker John Boehner released a two-step debt-limit extension that would save $1.2 trillion over the next 10 years and raise the debt ceiling by $1 trillion immediately.  The plan would allow for a second hike to the debt ceiling by creating a joint committee of Congress to outline $1.8 trillion in deficit cuts and requiring the House and Senate to vote on a balanced budget amendment after October 1 but before the end of the year.  The proposal would require an up-or-down vote in Congress of the committee’s legislation, and it would allow the president to request $1.6 trillion in added borrowing once it is enacted.  Boehner said, "This plan is far from perfect, but it adheres to our principles of ensuring that spending cuts are greater than any debt hike and it includes no tax increases."  Boehner added, "Time is running short and it would be irresponsible for the President to veto this common-sense plan and run the risk of default.  I would encourage the Senate to pass this plan and the President to sign it."  A vote in the House could occur Wednesday. 

  • Boehner's plan:
    • "Cuts That Exceed The Debt Hike.  The framework would cut and cap discretionary spending immediately, saving $1.2 trillion over 10 years (subject to CBO confirmation), and raise the debt ceiling by less – up to $1 trillion.
    • Caps To Control Future Spending.  The framework imposes caps on discretionary spending that would establish clear limits on future spending and serve as a barrier against government expansion while the economy grows.  Failure to remain below these caps will trigger automatic across-the-board cuts (otherwise known as sequestration). 
    • Balanced Budget Amendment.  The framework advances the cause of the Balanced Budget Amendment by requiring the House and Senate to vote on the measure after October 1, 2011 but before the end of the year, allowing the American people time to build sufficient support for this popular reform. 
    • Entitlement Reforms & Savings.  The framework creates a Joint Committee of Congress that is required to report legislation that would produce a proposal to reduce the deficit by at least $1.8 trillion over 10 years. Each Chamber would consider the proposal of the Joint Committee on an up-or-down basis without any amendments.  If the proposal is enacted, then the President would be authorized to request a debt limit increase of $1.6 trillion. 
    • No Tax Hikes.  The framework includes no tax hikes, a key principle that Republicans have been fighting for since day one."
    • Additional information on Boehner's plan can be accessed via: http://www.speaker.gov/Blog/?postid=253567
  • Meanwhile, Senate Majority Leader Harry Reid's plan cuts $2.7 trillion from the deficit over the next decade and extends U.S. borrowing authority into 2013. The plan would not raise revenue and does not cut back on entitlements. Reid’s plan also would establish a joint Congressional committee, a 12-member body tasked with making recommendations to Congress on further savings by the end of 2011.
  • In an interview yesterday, Treasury Secretary Timothy Geithner said, "[L]et me tell you what we're trying to do, what the president is trying do, is, first and most important, we have to lift this credit default from the economy for -- you know, for the next 18 months.  We have to take that threat off the table through the election.  But we also want to try to make sure we come together and make some choices, lock in some long-term savings to help get our fiscal house in order.  We need to do those things so that Congress can get back to the business of trying to do things to make economy stronger and get more Americans back to work."
  • In remarks yesterday, Boehner said, "I thought we could get new revenues out of a growing economy that had more Americans working, more Americans paying taxes, and the fact that a fairer, flatter tax code means that we would have had a more efficient system of people understanding what their tax obligations were and our ability to collect what was due.  Between the two, I believe that we could accomplish $800 billion without raising taxes."  Boehner added, "It was not raising taxes.  If you look at how it was outlined, we agreed the taxes would have to be reduced from the current law, current policy all the way down $2.7, $2.8 trillion from what the current law is.  Yes, it is $800 billion over what the current policy is, but I thought that we could achieve that amount of money through fundamental tax reform on the corporate side and personal side."

IRS CORRECTS GUIDANCE OUTLINING PHASED IMPLEMENTATION OF VARIOUS FATCA REQUIREMENTS: The IRS has revised Notice 2011-53, which provides a timeline for implementation of the withholding, reporting, and due diligence requirements of the Foreign Account Tax Compliance Act, to make clear that the timelines for withholding described in the notice are applicable to withholding under section 1472(a) with respect to payments made to non-financial foreign entities as well as withholding under section 1471(a) with respect to payments made to foreign financial institutions.

MISCELLANEOUS GUIDANCE RELEASED TODAY:

  • The IRS announced that it will extend help to more innocent spouses by eliminating the two-year time limit that now applies to certain relief requests.  The change to the two-year limit is effective immediately, and details are in Notice 2011-70.

INTERNAL REVENUE SERVICE - CIRCULAR 230 DISCLOSURE:
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.

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