Volume 9 Number 18 August 5, 2011
The Debt Deal – What it May Mean
On August 2, the President signed into law the Budget Control Act of 2011. This legislation increases the debt limit for the government by $2.4 trillion. However, unlike past laws that raised the debt limit in one lump sum, the Budget Control Act increases the debt limit in stages and requires that those increases be offset by measures to reduce spending or raise revenue:
There are still likely to be substantial cuts in programs. There are 10 appropriations bills at some stage in the process with $24 billion in cuts. The new money averts total disaster, but not by much.
With the end of the fiscal year looming, it is likely that the House Appropriations Committee will begin assembling a continuing resolution or omnibus appropriations bill. The Senate may schedule a series of appropriations mark-ups in the fall to have something on the record, but inevitably, Congress will be well into the autumn before appropriations bills are completed. However, with both sides having agreed to a top line number, the process should go a little more smoothly.
Joint Select Committee on Deficit Reduction
If history is any guide, Democrats will push tax increases or new revenue, and Republicans will push entitlement program reductions, and a deadlock will result. The two sides even disagree on whether taxes or revenue are part of the mix, and the baseline for revenue and tax expenditures. So deadlock is a real possibility.
If the Committee cannot reach agreement, its recommendations are not approved by Congress, or vetoed by the President, then the new law brings back an old concept – a sequester, or across the board cut – to cover the cost of the additional debt increase. In the 1980’s Congress enacted the Gramm-Rudman-Hollings Act which did exactly that. Under the law, most programs – excluding Social Security, Medicaid, and Medicare benefits – but including Defense, will be subject to the sequester. The sequester would take place in 2013.
The prospect of a $600 billion sequester of Defense spending was rattling Washington before the ink was dry on the new law. At the end of negotiations, Republicans tried to peel back the initial $350 billion reduction on Defense and failing that, got an expanded definition of ‘security programs’ in order to try to shield DOD. Democrats believe that Republicans cannot live with further reductions in Defense and will therefore give in on taxes.
Alternatively, there is a long must-do legislative list before Ways and Means and Finance. If the Joint Committee is focused on 2013 and beyond, that may encourage action on expiring provisions – particularly those that are less controversial. That list could include the patch for Alternative Minimum Tax, the “Doc Fix” on reimbursement rates for Medicare; and expiring extenders including New Markets Tax Credits. It is almost certain that Congress will begin the process of dealing with these issues in 2011. Whether they get to the finish line is an open question and probably a function of how poorly the economy is doing.
As he pivots to a jobs agenda, the President has called for extension of payroll tax relief and unemployment insurance (UI). He also continues to talk about tax reform and there is substantial interest in Congress on this issue.
If the economy continues to drift downward, pressure for extension of both payroll tax relief, UI and other initiatives – including tax reform --may become more attractive. During deliberations on the debt ceiling, Republicans were reported to be amenable to getting rid of certain tax breaks so long as it was used for other provisions in the IRS code. So a deal to try to lift the economy by getting rid of controversial tax expenditures -- each Party as its list – accommodating payroll tax relief and UI, along with other more comprehensive measures may come to the fore.Safe to say, this debt limit agreement is not the beginning of the end, it is the end of the beginning. The Budget Control Act did little to resolve differences between the two parties and left Congress and the President with a series of unpalatable choices. In the long run, an improving economy and the wind-down of two wars will have a salutary effect on the budget situation and take some of the pressure off. In the meantime, the debt and deficit will be a central focus for the balance of this Congress, and for the 2012 Presidential and Congressional campaigns.
Demand for NMTC Soars
The NMTC program remains an effective tool to drive private sector investments to the country’s most highly distressed communities where unemployment rates exceed the national average and access to patient, flexible capital is needed more than ever. This time of market uncertainty only fuels the need for this public-private partnership model. The NMTC works to help finance businesses and community facilities in small towns and urban neighborhoods alike on affordable terms in order to maintain jobs and expand production capacity.
Bipartisan NMTC Extender Bills Introduced
A campaign is underway to continue the NMTC program beyond 2011. The New Markets Tax Credit Extension Act of 2011 (S. 996/ H.R. 2655) would extend NMTC for five years, through 2016, with $5 billion in annual Credit allocation authority to keep pace with annual investment activity. The legislation would also provide Alternative Minimum Tax relief on NMTC investments in keeping with other similar tax credits.
U.S. Senators Jay Rockefeller (D-WV) and Olympia Snowe (R-ME) introduced the Senate bill and U.S. Representatives Jim Gerlach (R-PA) and Richard Neal (D-MA) introduced the House bill. Please encourage your Member of Congress to sign on as a co-sponsor of the New Markets Tax Credit Extension Act of 2011. In order to join as a co-sponsor, Senate offices should contact Mark Libell with Senator Rockefeller (202-224-6472) or Scott McCandless with Senator Snowe (202-224-7884). House offices should contact Lori Prater with Rep. Gerlach (202-225-4315) or Kara Getz with Rep. Neal (202-225-0547).
Visit our website for more information on the NMTC Extension Campaign.
Please Encourage Businesses to Sign NMTC Support Letter
We are asking all businesses that have benefited from NMTC financing to please sign this letter to Congress urging extension of the NMTC program. To date more than 3,000 businesses located in all 50 states and DC have received an NMTC investment, but just 300 are signed on to the Coalition’s letter.
Please contact your business partners today and ask them to consider signing this letter.
Applications for $3.5 billion in Credit allocation authority were submitted to the CDFI Fund on July 27, and this will be the final allocation round before the program expires at the end of 2011 unless Congress acts to extend the program. That is why it is so important to show Members of Congress that businesses want the program to continue.
We want to demonstrate support from every state in the union and we need your assistance to reach the businesses that are the ultimate beneficiaries of this economic development program.
It’s easy for businesses to add their name and organization to this letter. Simply click here and enter contact information in the space provided.
Disaster Relief Bill Includes NMTC
The Disaster Tax Relief Act of 2011 (S.1456 / H.R.2718) was introduced August 1st in the House by U.S. Representative Ron Kind (D-WI) with co-sponsors Reps. Spencer Bachus (R-AL), Richard Neal (D-MA) and Terri Sewell (D-AL) and in the Senate by Senators John Kerry (D-MA) and Scott Brown (R-MA). The legislation is designed to encourage charitable donations to federally designated disaster areas and to help individuals as well as businesses that suffered property losses as a result of the disaster. The assistance provided in the bill would be available to any community declared a federal disaster area after December 31, 2010.
Please click here for a summary of the bill.
Save the Date!
The New Markets Tax Credit Annual Conference will take place this year on December 5th and 6th at the Hotel Monaco in Washington DC. Please check our website for more information as it becomes available.
New Markets Tax Credit Coalition