Rock Products

DEC 2012

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Looking at the Lame Duck Congress The United States Will Fall Off a Fiscal Cliff With No Safety Net In Place Unless the President and the Congress Amend Current Law. This analysis is excerpted from the report ���A Narrowly Divided Electorate Has Spoken: How Will The President And The Congress Respond,��� issued by the law frm of Patton Boggs LLP. - ED With President Barack Obama having been reelected and the Senate and the House having stayed in Democratic and Republican hands, respectively, attention now will turn to the lame duck session of Congress. To put matters in perspective: Unless current law is amended, all of the Bush tax cuts will expire at the end of the year, as will various other tempo��� rary tax provisions (e.g., AMT relief for middle class Americans, extension of estate tax relief, and a variety of tax credits that are enjoyed by individu��� als, as well as the R&D; tax credit and a host of other tax credits relied upon by the business community, some of which need to be extended retroac��� tively to the beginning of 2012). Congress and the Administration also must decide how to protect physicians serving Medicare patients from sus��� taining steep cuts in reimbursement rates and whether to extend enhanced unemployment insurance for the long��� term unemployed. In addition, deci��� sions need to be made whether to extend, replace, or allow to lapse the two percentage point payroll tax cut for all working Americans. Finally, $109 billion in across���the���board spend��� ing cuts (���sequestration���) mandated by the Budget Control Act of 2011 will begin to kick in on January 2. Half of the automatic spending cuts will hit the Pentagon, while the other half will reduce spending by the rest of the government, with most agencies 36 ROCKproducts ��� DECEMBER 2012 facing funding cuts of 8.2 percent. In popular parlance, the United States will fall off a fiscal cliff with potentially no safety net in place unless the Presi��� dent and Congress agree to amend current law. Recognizing Danger Recognizing the dangers to the econ��� omy, the Administration reportedly is analyzing the extent to which it could use existing authority to buy additional time to reach an agreement with Con��� gress early next year, such as by freez��� ing the amount of money taken out of payroll checks by not updating tax withholding tables to reflect expiration of the Bush tax cuts on December 31. The Administration also could seek to delay until later in the year automatic spending cuts that otherwise would begin on January 2. We do not expect the Administration to make its plans public any time soon, not least be��� cause identifying an escape hatch early could create the very outcome it hopes to avoid. And, in any event, it doesn���t have to come to this. A great deal was accomplished in the lame duck session of 2010, in large part because Democrats and Republi��� cans agreed to compromise. Both sides recognized that the economy needed a boost and that, by working together, they could resolve issues that until then had eluded resolution. In that environment, the President agreed to extend all the Bush tax cuts, as well as to extend other expiring or expired tax provisions, such as AMT relief. He also succeeded in pushing a major arms control treaty through the Senate. We expect a comparable effort this time as well, though the details on the tax policy side will likely be subject to intense negotiations, par��� ticularly on whether to limit extension of the Bush tax cuts to a particular in��� come threshold. To date, Congress has been unable and unwilling to agree to do anything, in part because of intransigence by both parties over whether to impose an in��� come limit on an extension of the Bush tax cuts and in part because the ���cost��� of extending current law has been well beyond what Congress has been will��� ing to ���pay.��� As one example, a two���year extension of an AMT patch for middle���class fami��� lies plus routine extension of expired and expiring tax provisions would cost $205 billion. In addition, delaying sequestration for an additional year would require $109 billion in new rev��� enues or cuts to non���targeted pro��� grams (unless, of course, Congress punted by forcing nine years of cuts into eight, increasing the pain in fu��� ture years).Over the last year, there has been bipartisan agreement that the fiscal cliff must be avoided and that a comprehensive overhaul of our tax code is necessary. Fundamental Disagreement Nonetheless, the parties have funda��� mentally disagreed about how to ap��� proach these issues, with President Obama and Congressional Democrats arguing for significant tax increases as a means of deficit reduction, and Gov��� ernor Romney and Congressional Re��� publicans rejecting the idea that any direct tax increases are necessary, preferring that any new revenue come from assumed economic growth once tax reform is enacted. The result has been a continued leg��� www.rockproducts.com

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