House Takes On Fiscal Cliff

Lawmakers said that Representative Eric Cantor of Virginia, the No. 2 Republican, indicated to his colleagues in a closed-door meeting in the basement of the Capitol that he could not support the legislation in its current form. Many other Republicans were voicing stiff objections to a plan that they saw as raising taxes while doing little to rein in spending. Several conservatives assailed it on the House floor as the chamber convened at noon for an unusual New Year’s Day session.

“There’s not a lot of support for the bill as is. I personally hate it,” said Representative John Campbell, Republican of California. “The speaker, the day after the election, said we would give on taxes, and we have, but we wanted spending cuts. This bill has spending increases. Are you kidding me?”

Aides said that Speaker John A. Boehner, who had pledged to put any measure the Senate passed on the House floor for a vote, was mainly listening to the complaints of his rank and file and had not taken a firm position on the legislation, though he had clear reservations.

The situation loomed as a significant test for Mr. Boehner, who had been unable to pass his own proposal to increase taxes only on $1 million in income and above. He has said repeatedly that he would allow a vote on the Senate bill, but he has also said he did not want to pass a bill with predominantly Democratic votes. Public opposition from Mr. Cantor, who has up to this point sided with Mr. Boehner in the fiscal fight, would also complicate his position.

Brendan Buck, a spokesman for Mr. Boehner, said that during the meeting, “the lack of spending cuts in the Senate bill was a universal concern amongst members.” The Republican leadership expected to continue discussions Tuesday “on the path forward,” he added.

The 112th Congress comes to a close Thursday.

Democrats emerged from their own closed-door meeting with Vice President Joseph R. Biden Jr. generally sanguine about the deal, if not ecstatic. Few Democrats, if any, suggested a Democratic rebellion was in the works after a forceful — and lengthy — presentation by Mr. Biden, which walked them step by step through the negotiations, the legislation and the path forward on future deficit confrontations.

“It is clear that the vice president and the president are convinced that they have done the right thing. They don’t see it as a perfect deal though, and nobody else does,” said Representative Elijah Cummings, Democrat of Maryland.

It appeared that members were favoring trying to amend the measure and send it back to the Senate.

“I would be shocked if this bill doesn’t go back to the Senate,” said Representative Spencer Bachus, Republican of Alabama.

With just two days to go before a new Congress convenes, the House has essentially three choices: reject the bill, pass it as written by the Senate after what is certain to be a robust, even rancorous debate, or amend the bill and quickly return it across the rotunda to the Senate. Should the House choose to amend the measure, it would almost certainly imperil its chances of becoming law before the new Congress convenes. The Senate compromise, which enjoyed wide bipartisan support, was so hard fought and senators do not anticipate taking another vote on it.

Any failure to pass the measure before the 112th Congress ends as of noon Thursday would require the process to start over in the new 113th Congress, meaning the Senate would have to vote again with a changed membership due the departure of several veteran lawmakers and the arrival of newcomers from both parties as a result of victories in the November elections.

But the strong, bipartisan 89-to-8 vote in the Senate about 2 a.m. on Tuesday will put strong pressure on the House to approve the legislation since a defeat would essentially leave the House responsible for a steep series of tax increases and spending cuts that some economists warn could send the nation back into a recession.

Yet it was clear Tuesday morning that many House Republicans were disenchanted with the plan, which, while containing many concessions that angered Democrats, still favors the latter party’s priorities and imposes a tax increase on the wealthiest Americans.

“I am halfway through reading it and haven’t found the cuts yet,” said Representative Trey Gowdy of South Carolina, who generally votes against budget bills. “It’s part medicinal, part panacea, and part treating the symptoms but not the underlying pathology.”

Democrats have their own issues with the measure because of what they see as too many concessions on taxes, making it apparent some combination of Democrats and Republicans will have to come together behind the measure if it is to clear the House and be sent to President Obama for his signature.

Fiscal Cliff Uncertainty Creates Flood of Work for Attorneys

By Matthew Huisman All Articles 

The National Law Journal

December 18, 2012

The uncertainty of the "fiscal cliff" negotiations in Washington has resulted in a recent flood of activity for attorneys as their clients try and plan for the future.

"This year is almost the perfect storm," said Miller & Chevalier tax member Marc Gerson, former majority tax counsel to the House Ways and Means Committee. He pointed to not only the fiscal cliff and the expiring Bush-era tax cuts, but also the increase in Medicare taxes and a new investment tax.

As a result, businesses are looking to accelerate income before the year ends to avoid the uncertainty of 2013.

"Traditionally there always is year-end tax planning that we do on behalf of our clients," Gerson said. "Obviously folks are operating with a lot of uncertainty."

The uncertainty has created the question of what to do before the end of the year, as attorneys present their clients with different scenarios to better prepare them for the future.

"I think it's negatively impacting businesses and the stock market," said McDermott Will & Emery partner Henry Christensen III in New York, leader of the firm's national and international private client practice. "If you don't know, then you have to plan for the worst."

Christensen said that attorneys have been working around the clock and on the weekends to help their clients finish transactions before the year's end.

He said that there are about 100 transactions that must close before the end of the year in the New York office and another couple hundred in the firm's Chicago office. Christensen said that trust transactions and charitable contribution planning are two areas where the firm has been swamped. But attorneys are still waiting to see what will come out of Washington.

Christensen said that the lack of guidance on state income tax reduction has been disruptive for businesses. He pointed to two companies that are planning to move from New York to Florida as a result of income tax reduction. He said states like New York, Illinois, Michigan, California and Pennsylvania may lose out to states like Texas, Florida and New Hampshire when it comes to attracting businesses.

"My sense is that Congress is not paying a great deal of attention to the estate and gift tax, but what they're really focused on is the personal income tax," Christensen said. "Lawyers will be busy, but their clients will not be happy with Congress for making them do all these things."

Economix Blog: The Tax Side of the Fiscal Cliff

Come January, if Congress fails to act, sweeping federal tax increases will hit in what is not at all affectionately nicknamed in Washington “taxmageddon.”

How big are those federal tax increases? The respected Tax Policy Center is out with a full analysis of the math, and estimates the impact at more than half a trillion dollars next year alone.

In the words of Eric Toder, one of the report’s authors, “It’s just a huge, huge number.” The paper is full of such numbers. About 9 in 10 Americans would see their tax bills go up. The average household would pay $3,500 more. The typical middle-income household would pay $2,000 more. An average household in the top 1 percent would pay $120,000 more. The average federal tax rate would climb a whopping 5 percentage points. Americans would have 6.2 percent less after-tax income.

The analysis walks through the pending tax increases. The payroll tax holiday goes away, raising taxes on America’s 160 million wage earners. New provisions from the Affordable Care Act bump up taxes on the investment income of high-income households, and the Bush tax cuts for capital gains and dividends expire. The Bush-era income tax cuts end as well, with the top rate climbing to 39.6 percent from 35 percent. Without adjustment, the alternative minimum tax affects millions more taxpayers. Tax credits enacted in the stimulus go away. The estate tax jumps. It goes on and on.

The Tax Policy Center’s analysis shows that the tax increases would be painful for everyone, rich and poor.

The very wealthy would have the biggest hit, with the top 1 percent of earners seeing their average federal tax rate climb by seven percentage points. The single biggest tax increase would be on dividend earnings, with the tax rate increasing by 20 percentage points.

But the poor would not go unscathed, either. For households in the lowest income quintile, earning less than $20,113 a year, the average federal tax rate would climb 3.7 percentage points, with taxes increasing $412 on average. That works out to about $8 a week.

“For us, it’s lunch,” said Roberton Williams, a study co-author. “For other people, it’s dinner and lunch and breakfast that day.”

Moreover, many low-income families, particularly those with children, would end up paying much more, because of changes like the halving of the child tax credit.

Of course, members of the administration and Congress are already hard at work behind closed doors, aiming to stave off some of the tax increases and spending cuts due by law — the “fiscal cliff,” as the Federal Reserve chairman, Ben S. Bernanke, calls it.

The study helpfully ranks the tax increases from those most likely to happen (the expiration of the payroll tax holiday and the new Affordable Care Act taxes) to those least likely to happen (the expiration of the Bush tax cuts for lower-income earners and of the alternative minimum tax patch).