PURPOSE OF LEGISLATIVE SPOTLIGHT
LEGISLATIVE SPOTLIGHT is produced by NAIFA and is supplied to the Society of Financial Service Professionals as a collaborative effort that seeks to raise federal and state regulatory awareness for financial service professionals. The essential purpose is to facilitate understanding and a more fruitful dialogue with constituents and/or clients with regard to these important issues.

Speaking as one, we can and will make a difference.

Comments on Legislative Spotlight: Contact Ron Panneton with comments or suggestions concerning this newsletter.

Congress Passes CR and Heads Home to Campaign

On September 22, the Senate passed by a vote of 62-30 a continuing resolution (CR) that provides funding to keep the federal government operational for six months (through March 31, 2013). The House approved the CR earlier in September by a vote of 329-91 clearing the way for lawmakers to return home for an extended recess leading up to the November elections.

Funding the federal government was the one must-do item on the agenda with the budget year ending on Sept. 30. The bill keeps funding at levels agreed to during last summer’s budget and debt reduction deal reached between President Obama and congressional Republicans.

Congress will return after the Nov. 6 election to a wide range of unfinished business including the so-called “fiscal cliff” approaching at the end of the year. The fiscal cliff refers to the scheduled expiration of the Bush-era tax cuts and the $1.2 trillion in automatic cuts to defense and domestic spending programs (“sequestration”) that are required by the Budget Control Act of 2011. Additionally, many more Americans will be subject to the Alternative Minimum Tax (AMT) and sharp reductions in Medicare reimbursement rates for physicians ( Doc Fix) will take effect in 2013 absent Congressional action.

Currently, lawmakers are deeply split over how to address the fiscal cliff issues. Generally, Republicans want to replace the sequester with more targeted spending cuts and to address revenue issues with a fundamental tax reform plan (to be enacted in 2013) that would generate revenue equal to about 18 to 19 percent of gross domestic product (GDP). Current (2012) tax rules would be extended for all taxpayers for the year the GOP thinks it will take to enact a tax reform measure.

Democrats, on the other hand want to replace the sequester and extend 2012 tax rules for the middle class taxpayers, and think higher-income taxpayers ought to pay more tax. They are arguing for keeping 2012 tax rules for those earning $250,000 (family) or less, but allowing higher (2001 level) tax rates for those earning more than that amount.

Most lawmakers seem to be willing to support estate tax rules at the 2009 levels ($3.5/individual exemption, 45 percent top rate), but no path to enacting such rules appears visible at this point.

Whether the lame duck 112th Congress will be able to reach agreement on any or all of these issues prior to December 31 is uncertain. There are some lawmakers who think a better approach would be to let the incoming 113th Congress tackle the tax and sequester issues early in 2013.

Why It Matters: While the Congressional Budget Office (CBO) projects that “falling off the fiscal cliff” could result in deficit reduction from the currently projected $1.3 trillion in 2013 to $79 billion in 2015, economists on and off the Hill are unanimous in warning that this would be too precipitous a move. It could result in another deep recession, or even a full-blown depression.

Also, even though we will not know the political balance of power until after the elections, just about everyone is calling for tax reform, and whether it succeeds of fails, it’s virtually certain we will have the debate, starting by late November and into 2013. When that debate occurs the tax status of the products offered by the insurance industry need to be preserved.

To Learn More: Contact Contact Diane Boyle at dboyle@naifa.org.

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