Lame Duck Session

ISSUES BEFORE CONGRESS DURING THE LAME DUCK SESSION Allowing current law to stand * results in deficit reduction of: – $ 7.8 T over ten years * (Expiration of Bush tax cuts, Alternative Minimum Tax (AMT), Doc Fix, Payroll Tax, Unemployment Insurance (UI) etc.)

Pros: Virtually eliminates the deficit over 10 years Cons: CBO indicates total impact of tax increases and spending cuts – 3.9% reduction in GDP Resulting in a negative growth rate / double dip recession

Tax Issues 2001 & 2003 Bush/Obama Tax Cuts cost: – $110 B in 2013 / $2.8 T over ten years Tax Rates – Individual Top Rate goes from 35% to 39.6% Dividends become Ordinary Income – 39.6% Capital Gains and Dividends currently at 15%, Capital Gains rate would go to 25% rate in 2013 – 20.0% from repeal of Bush/Obama cuts – 3.8% from health care reform – 1.2% from reinstatement of Pease rules Estate + Gift tax goes from 35% over $5 M to 55% over $1 M

Spending AMT Patch cost: $125 B in $1.7 T over ten years Business Tax Extenders cost - $ 30 B in $455B over ten years 2% Payroll Tax Relief cost - $120 B for 2013 Long Term Unemployment Benefits: $ 25 B in 2013 Doc Fix: $ 30 B in $ 300 B over ten years Other Extenders: $ 10 B in $250 B over ten years Budget Control Act (BCA) Sequester - $ 1.2 T over 9 years – $ 495 B from defense - $ 55 B a year – $ 495 B from non-defense a year - $ 55 B a year – $ 200 B from reduced borrowing

Other Consequences of Congressional Inaction / Partial Action Anticipation of these tax increases and spending reductions will reduce growth rate an additional 0.5% this year Payroll tax cut allowed to expire, but other cuts delayed 2.3 % reduction in GDP – still positive growth. Doing nothing long term addresses our deficit problems, but in the short term increases deficits by $47 B in 2012/2013 due to reduced growth.

TAX REFORM Goal of tax reform is to lower taxation rates by eliminating tax expenditures/deficit reduction. Make the Tax Code value neutral.

Revenues/Tax Expenditures In FY 2013 Federal Government projected to raise revenue from: – Individual Tax Revenue - $1.4 T – Corporate Tax Revenue - $350 M FY2013 Projected Tax Expenditures: $1.25 T

Popular Tax Expenditures CorporateIndividual Real Estate * Home Mortgage Deductions $90 B *Property Taxes $23 B *Exclusion of Capital Gains on Sales of Principal Residence $26 B Credit for Low Income Housing $5.6 B$.3 B Other Business & Commerce *Reduced rates on dividends and Capital Gains $110 B *Exclusion of Capital Gains at death $44 B Research and Experimentation/Increase (Section 41) $8.3 B

CorporateIndividual Financial Institutions *Exclusion of investment income on life insurance and annuities $2.6 B$27 B Transportation Parking, Transit Passes, Van pooling $5.5 B Community and Regional Development *Tax Exempt Bonds $1.4 B$35.5 B Employment Cafeteria Plans $39.6 B Social Services *Credit for Children under 17 $26 B *Charitable Contributions $2.5 B$46.9 B

CorporateIndividual Healthcare *Exclusion for Employer Health Care $148 B *Deduction for Medical Expenses /Long Term Care $14.1 B Worker’s Compensation (Medical Expenses) $5.4 B Medicare *Exclusions for Medicare benefits Parts A, B & D $73.1 B General Purpose Fiscal Assistance *Deduction for State and Local Taxes $46 B

CorporateIndividual Income Security Workman’s Compensation $4.1 B *Pensions (Keogh, Defined Benefit, Defined Contribution, IRAs) $166.2 B *Earned Income Tax Credit (EITC) $58.1 B *Untaxed Social Security and Railroad retirement $39.2 B Veterans disability, pensions, readjustment benefits $7 B Exclusion Benefits, disability allowance for military $5.3 B