More On Legal & Compliancefrom The Advisor's Professional Library
- Whistleblowers A whistleblower is any individual providing the SEC with original information related to a possible violation of federal securities law. The Dodd-Frank Act established a whistleblower program that enables the SEC to reward individuals who voluntarily provide such information.
- Differences Between State and SEC Regulation of Investment Advisors States may impose licensing or registration requirements on IARs doing business in their jurisdiction, even if the IAR works for an SEC-registered firm. States may investigate and prosecute fraud by any IAR in their jurisdiction, even if the individual works for an SEC-registered firm.
Two lawmakers struck a two-year budget deal in mid-December, just days shy of the budget conference committee’s Dec. 13 deadline to find a way to keep the government running beyond the expiration of the current continuing resolution (CR) on Jan. 15.
The budget deal reached by Rep. Paul Ryan, R-Wis., and Sen. Patty Murray, D-Wash., called The Bipartisan Budget Act of 2013, appeared to have the support of both parties. However, Sen. Ben Cardin, D-Md., who spoke at an event on Capitol Hill held by the Insured Retirement Institute the day after the budget deal was made late on Dec. 10, said there won’t be a “grand bargain.” Both he and Sen. Rob Portman, R-Ohio, who were both honored by IRI with the Champion of Retirement Security Award, agreed on the need for tax reform.
Cardin said that while the nation desperately needed tax reform, “it will be challenging to get tax reform [legislation] without a major budget agreement.” He encouraged attendees to “get involved” in the budget and tax debate “as it will only be intensified as we move forward toward the midterm elections.” Portman agreed, saying, “As we move forward, we will have to have tax reform and move every rock for revenue.”
The next macro issue facing Congress in the new year will be the debt limit, and analysts at Washington Analysis said in mid-December that they believe lawmakers will act by the mid-March deadline. However, they said, “this date could slip until June or July, depending on government receipts, making a crisis less likely so close to the midterm elections.”
Ryan and Murray’s Bipartisan Budget Act of 2013 would set overall discretionary spending for the current fiscal year at $1.012 trillion—about halfway between the Senate budget level of $1.058 trillion and the House budget level of $967 billion. The agreement would provide $63 billion in sequester relief over two years, split evenly between defense and non-defense programs. In fiscal year 2014, defense discretionary spending would be set at $520.5 billion, and non-defense discretionary spending would be set at $491.8 billion.
The sequester relief is fully offset by savings elsewhere in the budget. The agreement includes dozens of specific deficit-reduction provisions, with mandatory savings and non-tax revenue totaling approximately $85 billion. The agreement would reduce the deficit by between $20 billion and $23 billion.
The Washington Analysis analysts predicted a government shutdown was unlikely, and noted that the Fed would likely start tapering soon following the positive jobs report on November.
But the analysts expected the final budget agreement to be more noteworthy for what it didn’t include, rather than what it did include.
“The bill is unlikely to include an extension of emergency unemployment benefits, which would cost more than $20 billion in 2014. While Democrats are trying to get an extension in the bill, we doubt Republicans will acquiesce,” the analysts said. “Some compromise on this issue is possible, but unlikely.
“The bill also likely won’t include an extension of Section 179 expensing and bonus depreciation. Both of these provisions expired on Dec. 31, and there is little chance that they will be extended in this agreement. While they are likely to be addressed retroactively next year, that maybe [won’t occur] until the lame-duck session. Also, the list of dozens of tax extenders (e.g., R&D tax credit, short-line rail tax credit, production tax credit) will also expire at the end of  and are unlikely to be included in a budget agreement. As with Section 179 expensing and bonus depreciation, the extenders are likely to be dealt with retroactively to Jan. 1, 2014, during a lame-duck session.”
If Ryan and Murray’s agreement falls apart, the House was expected to pass a mostly “clean” continuing resolution before leaving for the year on Dec. 13, the analysts said.
But on the tax side, it was anticipated that Rep. Dave Camp, R-Mich., chairman of the House Ways and Means Committee, would miss his self-imposed deadline of moving a tax reform bill through his committee by the end of 2013. Camp also opined in comments before year end that he wasn’t confident a tax reform bill would even surface in the new year.
Indeed, Wes Sheumaker of the law firm Sutherland wrote in December on the firm’s TaxReformLaw.com website that some Republicans have gone so far as to question whether a tax reform bill is even possible in 2014, “given the budget and debt ceiling fights that are expected in the coming months and the fundamental differences between the Republicans and Democrats over possible tax increases.”
Kyle Pomerleau, economist for the Tax Foundation in Washington, told me in an email that with Camp having released his discussion drafts last spring, the release of Baucus’ proposals in the fall of 2013 “provided a marker” on where the House and the Senate stand on tax reform.
“It’s important that tax reform increase U.S. competitiveness and grow the economy, and there are worries that provisions in Senator Baucus’ proposals would do the opposite,” Pomerleau said. However, he opined that Baucus “isn’t entirely to blame. The current requirement of revenue neutrality shifts the focus away from economic growth and toward making sure the numbers add up. This approach leaves value on the table.”
Baucus’ proposals include changes to cost recovery, reform of international business taxation, ways to pay for a lower corporate tax rate and capital cost recovery across the OECD.
Baucus’ draft regarding international tax reform sets up a discussion of “how to design the equivalent of a leash to rein in the abuse of the U.S. tax system by multinational corporations,” according to Christopher Bergin, president and publisher of Tax Analysts.
Said Bergin: “When tax reform does come, and whatever it means when it gets here, U.S. multinationals will pay a price.”
Baucus, D-Mont., announced in April that he would not seek re-election in 2014, but Pomerleau expects him to continue to work to reform the code “until his last day in the Senate,” as Baucus “has made it clear that he is dedicated to tax reform.”
On many tax officials’ minds is who will replace Baucus. Sen. Ronald Wyden, D-Ore., would be next in line for chairman of the Finance Committee according to seniority.