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Debt Ceiling Increase and Limited Statutory Pay Go Supplementing the Current Broader Non-Statutory Pay Go Rules

Legal Services
02.15.10

Debt Ceiling Increase and Limited Statutory Pay GoSupplementing the Current Broader Non-Statutory Pay Go Rules Supposedly Currently Governing the House and the Senate and Targeting Tax Increases to Those with Adjusted Gross Income in Excess of $200,000/$250,000

The House and Senate, largely along party lines, have passed H, J, Res. 45 which increases the United States debt ceiling by $1.9 trillion to $14.3 trillion and imposed a statutory limited pay as you go (“Pay Go”) provision covering approximately 17% of the total federal budget.  This statutory provision either replaces or supplements the current broader nonstatutory pay-go rules that currently govern the House and the Senate.  To the extent the Pay Go provisions apply, any legislation that increases spending over a five or ten year period or reduces tax revenue over such periods will have to be offset with new revenue or declared an emergency provision (which has been a common occurrence in the recent past involving over a trillion dollars). Under the Pay Go provision,  the Office of Management and Budget would make cuts to mandatory spending programs if legislation enacted over the course of a year adds to the deficit.  However, any bill containing language that it was an emergency bill or declared itself exempt from Pay Go would be exempted.

The political overtones of this legislation should not be missed.  Prior to the House vote, House Democratic leaders held a conference call with former President Clinton, who said that pay-go could help Democrats in their reelection campaigns.

"This is one of those things that has the benefit of being both symbolically  and substantively beneficial," Clinton said, adding that it would be "a lot easier" for Democrats to describe their legislative accomplishments "in the context of restoring fiscal responsibility." 

The exceptions to the Pay Go provisions clearly indicate that upper income Americans will be bearing a greater share of the cost of the federal government  through higher income taxes and capital gains rates.  The Pay Go provision specifically excludes from the computation of revenue loss from:

  1. A permanent enactment of the “Bush Tax Cuts” for all but the two top ordinary income brackets (single $200,000 and joint returns $250,000);
     
  2. A permanent maintenance of the current capital gains and dividend tax rates for  those with adjusted gross income of less than $200,000 if single and $250,000 if filing joint returns with threshold adjusted for inflation;
     
  3. A permanent extension of the current employer provided child care credit;
     
  4. A permanent extension of the dependent care credit;
     
  5. A permanent extension of the adoption credit;
     
  6. A permanent extension of certain education tax benefits;
     
  7. A permanent full use of the personal exemptions and overall limitations on itemized deductions for those with adjusted gross income of less than $200,000 and  joint returns $250,000 indexed for inflation with the phase out for those above;
     
  8. A permanent increase in the limitations on expensing depreciable business assets for small business under Code Section 179(b) as in effect in 2010.
     
  9. A two year patch for the alternative minimum tax  keeping the application of the alternative minimum tax to the same estimated number of people impacted in tax year 2008.
     
  10. A continuation of the estate tax utilizing the 2009 rules through December 31, 2011.

Any effort to keep the top income tax brackets where they are 2010, not to have a phase out of itemized deductions and personal exemptions, or for the current capital gains and dividend rates to apply to those making over $200,000/$250,000 would require a revenue offset.   Extending the 2009 estate tax rates or an alternative minimum tax “fix” past 2011 would also require a revenue offset.

On the spending side, legislation that would maintain physician Medicare compensation through December 31, 2014 at current levels and stop the scheduled  21% reduction at the end of February is exempted.  The retention of existing compensation levels was promised by the Administration to the American Medical Association last year in the Democratic health care reform effort. 

The President is expected to quickly sign this legislation into law.

 

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