TRUIRJCA, or the “Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010” (previously discussed in Wealth Law Blog) was passed by the 2010 “lame duck” Congress on December 17, 2010, and for the most part extended what many refer to as the “Bush Tax Cuts” until December 31, 2012. If Congress takes no action prior to that time, many key provisions of the tax law will revert to the law as it existed prior to the 2001 tax act.
Recently, the battle lines for the tax debate for the next 20 months have begun to take shape. Many of these issues are highly contentious, hotly political, and will not be resolved in the short term.
In the 2012 budget resolution dubbed The Path to Prosperity, House Budget Committee Chair Paul Ryan set forth a detailed budget proposal which also included certain parameters for tax reforms. The Ryan proposal includes:
- The lowering of both the top corporate and individual tax rates from 35% to 25%.
- “Eliminating or limiting as necessary existing tax deductions, exclusions, and other special provisions.”
- While not all of the details of such “eliminations” and “limitations” have not been released, many believe the proposals could include a limitation on the home mortgage interest deduction to a maximum of $500,000 worth of mortgage and only on a principal residence, not a second home (under current law, the amount of mortgage held by a married couple eligible for interest deduction is $1 million, and that can apply to a second home).
On the other hand, President Obama and Senate Democrats are proposing the following:
- Allow the Bush tax cuts to expire for individuals earning over $200,000 and couples earning over $250,000, pushing the top tax bracket for such individuals up to 39.6%.
- Limiting itemized deductions (termed “tax expenditures” by President Obama) for the wealthiest 2% of taxpayers.
- Reform of the corporate tax code, although neither the President nor Treasury Secretary Geithner has released specific details of these reforms.
The looming budget deficit crisis will, by itself, make any tax compromise very difficult. Add in a full dose of election year politics, and the likelihood of true tax reform becomes even more speculative. Could we be looking at “TRUIRJCA II” in the 2012 post-election “lame duck” session? Stay tuned!
