Daily Tax Update - July 17, 2012: Federal Reserve Chairman Urges Congress to Avoid "Fiscal Cliff"

FEDERAL RESERVE CHAIRMAN URGES CONGRESS TO AVOID "FISCAL CLIFF":  Today, in testimony to the Senate Banking Committee, Federal Reserve Chairman Ben Bernanke urged Congress to avoid taking the nation’s economy over a "fiscal cliff."  Bernanke said, "The U.S. economy has continued to recover, but economic activity appears to have decelerated somewhat during the first half of this year."  However, Bernanke said that an "important risk to our recovery...  is the domestic fiscal situation."  Bernanke stated, "As is well known, U.S. fiscal policies are on an unsustainable path, and the development of a credible medium-term plan for controlling deficits should be a high priority.  At the same time, fiscal decisions should take into account the fragility of the recovery.  That recovery could be endangered by the confluence of tax increases and spending reductions that will take effect early next year if no legislative action is taken.  The Congressional Budget Office has estimated that, if the full range of tax increases and spending cuts were allowed to take effect--a scenario widely referred to as the fiscal cliff--a shallow recession would occur early next year and about 1-1/4 million fewer jobs would be created in 2013.  These estimates do not incorporate the additional negative effects likely to result from public uncertainty about how these matters will be resolved."  Bernanke added, "The most effective way that the Congress could help to support the economy right now would be to work to address the nation's fiscal challenges in a way that takes into account both the need for long-run sustainability and the fragility of the recovery.  Doing so earlier rather than later would help reduce uncertainty and boost household and business confidence."

REID INTRODUCES MIDDLE-CLASS TAX RELIEF BILL; VOTE ON "INSOURCING" BILL EXPECTED THURSDAY:  Today, Senate Majority Leader Harry Reid introduced the "Middle Class Tax Cut Act," which would set the top tax rates for dividends and capital gains at 20 percent for 2013 and reinstate the 2009 estate tax levels for the year.  The bill would prevent an increase in taxes on households earning less than $200,000 per year at the beginning of 2013.  The bill also provides modifications to estate, gift, and generation-skipping transfer taxes.  Reid is expected to bring the bill up for consideration in the Senate next week.

  • The Senate will vote Thursday on legislation that would provide a tax credit to companies that bring new jobs to the United States.  The "insourcing" bill (S. 3364) is sponsored by Sen. Debbie Stabenow (D-MI).
  • Reid’s middle class tax cut bill can be accessed here.

MISCELLANEOUS GUIDANCE RELEASED:

Notice 2012-48 provides guidance on Tribal Economic Development Bonds.

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.

STEPTOE & JOHNSON LLP - TAX PRACTICE 
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.