Taxing times: What American taxpayers should expect in 2011
What can American taxpayers expect this year?
While the debate intensifies around the need for fiscal restraint and the reduction of the government deficit, recommendations for reforming the U.S. tax code are proliferating. Obama’s appointed Commission on Fiscal Responsibility and Reform proposed a substantial overhaul of the federal tax system on December 1st in “The Moment of Truth” report1. Although the Commission’s overall proposal was subsequently defeated, we expect that many of its suggestions will influence the broader tax debate. Specifically, we anticipate these broad themes and key objectives to prevail during this year’s debate:
- Drive to close loopholes
- Efforts to broaden base of tax payers (both individual and corporate)
- Goal to lower rates overall (but increase revenues by accomplishing goals #1 and #2)
An environment with contentious debate
Going forward, it should come as no surprise that the two parties will disagree on strategy – even if they agree on objectives. Traditionally, Republicans favor spending cuts while Democrats favor tax increases2. We foresee that the environment surrounding tax policy change and reform will be fractious as…
- Politicians position themselves for the 2012 election cycle – Look for rhetoric and signature proposals by members of Congress such as the latest “Fair and Simple Tax Act” introduced by David Dreier3 or the effort by Dave Camp, new head of the House Ways and Means Committee to recast the debate on tax reform.
- The federal government hits its debt ceiling late March – Congress will be compelled to increase the debt ceiling or risk the cessation of government operations (not a realistic possibility in our opinion).
What could realistically be accomplished 2011?
We are expecting:
- More talk than action – Last week, Timothy Geithner, Treasury Secretary spoke with business leaders about lowering the U.S. corporate rate, which is now one of the highest in the world, by 20124.
- Instead of going for the full body of objectives in “The Moment of Truth,” Obama may introduce parts of the full recommendation. His suggestion that Federal employees have wages frozen comes from the proposal5.
- Future government spending may be scaled back slightly to reduce the magnitude of the federal debt. Current proposed cuts range from $60 billion to $100 billion, an amount totaling less than half of 1% of US federal receipts in for fiscal 20096.
However the tax discussion evolves, we plan to update readers throughout the year with further detail. Given the complexity of the U.S. tax code, we expect Washington debates to highlight multiple aspects, entities, and political agendas. In the meantime, please let us know how we can help answer questions from your clients by leaving us a note in the comment section of the blog.
1 Refer to “Our Guiding Principles and Values” on page 13 for greater detail.
2 “Democrats favor new stimulus; republicans, Healthcare repeal”, by Frank Newport, November 3, 2010
3 “Dreier introduces four key bills on opening day of 112th Congress”, January 5, 2011.
4 “Geithner starts talks on tax overhaul” by James Politi, Financial Times, January 14, 2011.
5 “Obama proposes Federal worker pay freeze in effort to help rein in deficit” November 30, 2010.
6 2009 receipts totaled $2,105 billion according to the White House budget.
Tags: tax talk