Tuesday May 21, 2013
Washington News
Treasury Secretary Promotes Revenue Increase
On March 15, Treasury Secretary Timothy Geithner spoke to the Economic Club of New York. Sec. Geithner discussed the improving economy, the challenges that remain and proposed revenue increases to help the USA achieve fiscal sustainability.
In Geithner's view there are a number of positive economic factors. During the past two years, 3.9 million jobs have been created. Business investment has increased 33% and exports are up 25%.
American households have been reducing debt for the past 3 years. Household saving rates were near zero in 2007, but now have increased to 4.5% of income.
The total output of the economy is now close to the pre-crisis peak. As a result, deficits are starting to trend lower, although they still are in excess of $1 trillion per year.
Geithner then moved on to the challenges facing America. Unemployment is still "very high and is improving more gradually than any of us would like." The unemployment rate continues to be over 8% and is moving down quite slowly.
Housing remains quite weak. There is a very low level of new residential construction. Home prices have declined in many parts of the country and home equity is down substantially.
Finally, the economy has grown at a much slower rate than most other recessions. During the first 2½ years following the recession of 2009, the economy grew at a much slower rate than in prior recessions.
Geithner then suggested the solutions that are needed for fiscal sustainability. In his view, a combination of $4 trillion in budget reductions and tax increases are needed. The spending compromise of August 2011 will cover approximately $1 trillion, leaving a balance of $3 trillion.
Under that compromise, there will be reductions in spending over the next decade. Half of the reductions will be from the Department of Defense and half will be from reduced payments to Medicare providers.
While there is a need for additional spending cuts, Geithner suggests that tax increases will also be necessary. The tax increases in his view should be "roughly $1.5 trillion over 10 years." If these increases are not made, there would be additional cuts in defense and entitlement programs.
Geithner noted, "We can't offer Americans the illusions of tax cuts that pay for themselves. No responsible politician can offer the nation fiscal sustainability through trillions in unpaid-for tax cuts."
He suggested that there will be negotiations following the election in November. Under current law there will be an expiration of the existing tax cuts and major "across-the-board cuts in spending." Therefore, Washington has a "strong incentive to agree on a balanced package of reforms."
Editor's Note: Secretary Geithner is setting forth the White House plans for the November negotiation. The White House budget proposes substantial increases in taxes for upper-income taxpayers. This could include increased income tax rates, increased rates on long-term capital gains and reduced itemized deductions.
Following the passage by the House and Senate of a major transportation bill, Majority Leader Harry Reid (D-NV) spoke on the Senate floor about the need to move forward with a bill on tax extenders.
Reid noted, "I would welcome the opportunity to work with my friend from Kentucky in finding a path forward soon on tax extenders. It is important that we take care of this early in the year so that taxpayers can plan and make decisions."
The ranking Republican leader is Sen. Mitch McConnell (R-KY). He agreed with Reid that the "tax provisions certainly are important to millions of American family and businesses and I would expect that Congress would act on these sooner rather than later."
However, McConnell also noted that it was important to have a critical review of the extenders and make decisions about which should be passed and which should be dropped. In his view, some provisions should be eliminated, others should be modified and the balance may be extended.
Sen. Finance Chair Max Baucus (D-MT) also supported a prompt extension of extenders. He indicated, "We should provide certainty to taxpayers by extending them through this year as soon as possible." Baucus also noted that it will be important to have a review of the extenders for 2013.
Sen. Oren Hatch (R-UT) is the ranking Republican on the Senate Finance Committee. He expressed concern about the "explosion" in the tax extenders. The number has increased from 42 in 1998 to 154 in 2011. Hatch prefers to evaluate all of the extenders and decide which should be dropped and which should be continued.
Editor's Note: The tax extender of great interest to many friends of philanthropy is the IRA charitable rollover. It is probable that the extenders bill will be passed this year and the IRA charitable rollover may be retroactive to January 1. While there still are good prospects for passage, it is quite likely that the tax bill will not be passed until after the November election.
In Geithner's view there are a number of positive economic factors. During the past two years, 3.9 million jobs have been created. Business investment has increased 33% and exports are up 25%.
American households have been reducing debt for the past 3 years. Household saving rates were near zero in 2007, but now have increased to 4.5% of income.
The total output of the economy is now close to the pre-crisis peak. As a result, deficits are starting to trend lower, although they still are in excess of $1 trillion per year.
Geithner then moved on to the challenges facing America. Unemployment is still "very high and is improving more gradually than any of us would like." The unemployment rate continues to be over 8% and is moving down quite slowly.
Housing remains quite weak. There is a very low level of new residential construction. Home prices have declined in many parts of the country and home equity is down substantially.
Finally, the economy has grown at a much slower rate than most other recessions. During the first 2½ years following the recession of 2009, the economy grew at a much slower rate than in prior recessions.
Geithner then suggested the solutions that are needed for fiscal sustainability. In his view, a combination of $4 trillion in budget reductions and tax increases are needed. The spending compromise of August 2011 will cover approximately $1 trillion, leaving a balance of $3 trillion.
Under that compromise, there will be reductions in spending over the next decade. Half of the reductions will be from the Department of Defense and half will be from reduced payments to Medicare providers.
While there is a need for additional spending cuts, Geithner suggests that tax increases will also be necessary. The tax increases in his view should be "roughly $1.5 trillion over 10 years." If these increases are not made, there would be additional cuts in defense and entitlement programs.
Geithner noted, "We can't offer Americans the illusions of tax cuts that pay for themselves. No responsible politician can offer the nation fiscal sustainability through trillions in unpaid-for tax cuts."
He suggested that there will be negotiations following the election in November. Under current law there will be an expiration of the existing tax cuts and major "across-the-board cuts in spending." Therefore, Washington has a "strong incentive to agree on a balanced package of reforms."
Editor's Note: Secretary Geithner is setting forth the White House plans for the November negotiation. The White House budget proposes substantial increases in taxes for upper-income taxpayers. This could include increased income tax rates, increased rates on long-term capital gains and reduced itemized deductions.
Sen. Reid – Pass Tax Extenders Now
Following the passage by the House and Senate of a major transportation bill, Majority Leader Harry Reid (D-NV) spoke on the Senate floor about the need to move forward with a bill on tax extenders.
Reid noted, "I would welcome the opportunity to work with my friend from Kentucky in finding a path forward soon on tax extenders. It is important that we take care of this early in the year so that taxpayers can plan and make decisions."
The ranking Republican leader is Sen. Mitch McConnell (R-KY). He agreed with Reid that the "tax provisions certainly are important to millions of American family and businesses and I would expect that Congress would act on these sooner rather than later."
However, McConnell also noted that it was important to have a critical review of the extenders and make decisions about which should be passed and which should be dropped. In his view, some provisions should be eliminated, others should be modified and the balance may be extended.
Sen. Finance Chair Max Baucus (D-MT) also supported a prompt extension of extenders. He indicated, "We should provide certainty to taxpayers by extending them through this year as soon as possible." Baucus also noted that it will be important to have a review of the extenders for 2013.
Sen. Oren Hatch (R-UT) is the ranking Republican on the Senate Finance Committee. He expressed concern about the "explosion" in the tax extenders. The number has increased from 42 in 1998 to 154 in 2011. Hatch prefers to evaluate all of the extenders and decide which should be dropped and which should be continued.
Editor's Note: The tax extender of great interest to many friends of philanthropy is the IRA charitable rollover. It is probable that the extenders bill will be passed this year and the IRA charitable rollover may be retroactive to January 1. While there still are good prospects for passage, it is quite likely that the tax bill will not be passed until after the November election.
Published March 16, 2012
Print
Email
Subscribe
BookmarkPrevious Articles
Should Small Business Owners Pay More Tax?
White House Energy Tax Proposal
