Update from Washington

While the presidential race transforms into a two-person battle around the country, activity in Washington is beginning to heat up again on tax reform.

Hearing on Estate Tax Scheduled – This week the House Small Business Subcommittee on Economic Growth, Tax and Capital Access plans to hold a hearing on the impact of the estate tax on small businesses. Several family-owned businesses are expected to provide testimony.

House Vote Likely Before August – House Speaker John Boehner (R-OH) has indicated the House would vote this fall to extend current tax rates for all Americans. Congressman Pat Tiberi (R-OH), who serves as Chairman of the Ways and Means Subcommittee on Select Revenue Measures, followed the comment by saying the House expects to vote on an extension of the 2010 Tax Act (most likely with a duration of one year) before the August recess.

Democratic Opposition Expected – The House legislation is not expected to get far in the Senate, where Democratic leaders continue to insist that any deal on taxes include higher revenues from higher income Americans. Taxes have also entered the discussion on sequestration, the mechanism instituted as part of the Budget Control Act that will cause major cuts in defense and non-defense discretionary spending at the end of the year. Senate Majority Leader Harry Reid (D-NV) has noted that Senate Democrats will oppose any mitigation of the defense cuts without additional revenues. On behalf of the Administration, Treasury Secretary Tim Geithner restated his belief that the government “can’t afford” extending current tax rates for higher income Americans when the 2010 Tax Act expires and reiterated President Obama’s threat to veto any extension that includes continued relief for individuals earning more than $200,000 per year.

Ways and Means Talks “Comprehensive” Reform – House Ways and Means Committee Chairman Dave Camp (R-MI) recently delivered a speech in which he identified comprehensive tax reform as a key priority of congressional Republicans, calling it a “centerpiece of our platform”. Camp disclosed that he has held a series of tax planning sessions with Ways and Means leaders to focus on two goals: blocking tax increases and enacting comprehensive reform. Camp also shared that Republicans hope to use expiration of the 2010 Tax Act as leverage to “force action in 2013” through implementation of “fast track” procedures for consideration of a comprehensive measure.

Bipartisan Hope?– Finally, Erskine Bowles, one of the personalities driving the Simpson-Bowles deficit reduction proposal, noted that he and former Senator Alan Simpson remain engaged in conversations with a bipartisan group of 47 Senators and many Representatives to try to achieve an agreeable path forward on taxes, spending and entitlements by year’s end. Bowles said, “I believe this group will come together during the lame duck”, and he noted that there were decent prospects of a deal because “I believe the market will force us”. He suggested the most likely path forward was a two-step process, outlining a framework first with a timeline to compel action later (similar in concept to Chairman Camp’s desired approach).

As always, we will keep you posted.