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US Deficit Committee May Defer Taxing Decisions

by Mike Godfrey,, Washington

17 November 2011

As it approaches its deadline of November 23 for the production of a plan for United States fiscal deficit reductions over the next decade, the Joint Select Committee on Deficit Reduction appears to be arriving at a decision not to take a decision and, as is said, "to kick the can further down the road."

The Joint Select Committee has been looking at measures, which could include spending cuts and tax reforms, to reduce the aggregate US deficit over the next decade by at least USD1.5 trillion. If it fails to produce results by the deadline, there is an enforcement mechanism so that, if the Committee fails, equivalent spending reductions will be triggered beginning in January 2013.

While the deliberations of the Committee are held in secret, and nothing of substance can be found on its official website, leaks are currently abounding concerning the contradictory proposals being made by both the Democrat and Republican parties.

As could probably have been expected, the Democrats on the Committee are insisting that significant tax increases should be part of any deficit reduction programme, in order to protect spending in its favoured areas, such areas as Medicare and social security.

On the other hand, while the Republicans on the Committee have said that they would accept a minor increase in overall tax revenue in exchange for a reduction in the top rate of individual income tax, they are looking for more substantial cuts to the Democrats favoured spending programmes. In any case, any tax rise agreed by the Committee might not be acceptable to the Republican party as a whole.

Therefore, as each party currently seems to be unwilling to compromise further and discussions in the Committee are stalled, it is becoming more probable that both parties will agree not to take any decision on specific tax changes before its deadline.

Instead, the Joint Committee could agree on a certain level of spending cuts and look to the relevant Congressional bodies, the House of Representatives Ways and Means Committee and the Senate Finance Committee, to produce a plan for the balance of deficit reduction next year, before the mandatory spending reductions would take effect on January 1, 2013.

In effect, the two Congressional committees would be given the task of reforming the US individual and corporate tax code to produce revenue savings during, it has been pointed out, an election year. However, despite the two committees being controlled by different parties, their Chairmen, Dave Camp (R – Michigan) and Max Baucus (D – Montana), who are also on the Joint Committee, appear to be willing to accept the instruction to work together.

TAGS: tax | economics | fiscal policy | corporation tax | enforcement | social security | United States | tax reform | individual income tax

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