Last week Congress — faced with an impending snow storm and a desire to get home for the Presidents Day holiday — hastily passed legislation permitting the federal government to continue to borrow funds through March 15, 2015. Coupled with the agreement reached last December to fund the government through September 30, 2015, this action eliminates the prospects of additional fiscal showdowns for at least the remainder of 2014.
While Congress can congratulate itself for keeping the government open and functioning (something it has not always been able to do), the fact is that these actions fail to addresses the fundamental fiscal issues facing the country. In particular, the compromises do not:
Some believe that the Republican agreement to extend the borrowing authority without a corresponding concession from the Democrats marks the end of the budget battles going forward. That is not my view, however. Although the fiscal battles will be quiescent this year, by the time next year that the debt ceiling has to be raised and the government funded again, a new class of House Republicans – likely fortified by new Tea Party members – presumably will want to take up the cudgel again to fight for fiscal restraint. (Keep an eye out for my upcoming election analysis and predictions in a new white paper.)
Extenders bill: Congress does have one more piece of unfinished fiscal business this year. A number of tax provisions expired at the end of 2013, as they do every year or two unless Congress renews them. An example is the IRA / charitable contribution provision that permits qualifying individuals to make tax-free annual contributions of up to $100,000 from their IRA to charity.
Typically Congress addresses the expiring provisions in an “extenders” bill. The Senate seems eager to take up such a bill, which would extend most of these provisions through 2014 (retroactively to January 1, 2014). But the House would prefer to wait until Congress can consider comprehensive tax reform, as reform is likely to affect each of the expired provisions.
In my view, tax reform is unlikely to occur this year. Once the House acknowledges that, Congress is likely to move the extenders bill later this year. Individuals who hope to take advantage of the IRA / charitable contribution provision in 2014 thus should hold off taking required minimum distributions until later in the year when we know whether the extenders bill will pass.
Andrew H. Friedman is the Principal of The Washington Update LLC and a former senior partner in a Washington, D.C. law firm. He speaks regularly on legislative and regulatory developments and trends affecting investment, insurance, and retirement products. He may be reached at www.TheWashingtonUpdate.com.
Neither the author of this paper, nor any law firm with which the author may be associated, is providing legal or tax advice as to the matters discussed herein. The discussion herein is general in nature and is provided for informational purposes only. There is no guarantee as to its accuracy or completeness. It is not intended as legal or tax advice and individuals may not rely upon it (including for purposes of avoiding tax penalties imposed by the IRS or state and local tax authorities). Individuals should consult their own legal and tax counsel as to matters discussed herein and before entering into any estate planning, trust, investment, retirement, or insurance arrangement.
Good read on what we call the "Primary Effect". A party has a bitter primary, only to see a heavily damaged candidate or the most idealogical candidate win. This makes it very difficult to win the general election. Dems are struggling w/same issue. ow.ly/Tx2330jAVsS
The next leader for GOP in House of Rep is not a given. Some say they should replace the entire leadership team, not just pick the next in line. Perhaps not even a House member...yes, they can do that. FYI- Nancy Pelosi is not a lock for Dems either. ow.ly/GOzz30jzNV3
You know our position on U.S. fiscal matters. Great article dissecting the GOP position on the recent CBO projections. Pay particular attention to the last two paragraphs. It's what we've been telling audiences for the better part of the last decade. ow.ly/ql2j30jysGC
Tax reform II in 2018? Not likely to become law, but it will be interesting to see which vulnerable democrats vote for round two in an election year. Assuming it makes it to the Senate. Goal is to make individual cuts permanent. ow.ly/yGn730jysfG