This week, President Obama signed into law the Budget Control Act of 2011 (S.365), which establishes a process for increasing the $14.3 trillion statutory debt ceiling by at least $2.1 trillion and results in deficit reductions of at least $2.1 trillion over 10 years.
Overall, President Obama and Congressional Democrats successfully secured debt limit increases large enough to extend through the 2012 elections, while Congressional Republicans were equally successful in preventing deficit reduction without revenue increases.
However, the Act’s creation of a 12-member Joint Select Committee on Deficit Reduction, tasked with reducing the deficit by at least $1.2 trillion through fiscal 2021, virtually guarantees that a tough debate over the national debt—particularly as it relates to taxes and entitlement spending—will resume quickly when Congress returns in September. This will certainly impact several key industry tax provisions.
Below are major manufactured and modular housing tax provisions that MHI staff are lobbying on:
• ENERGY STAR Tax Credit: Presently, manufacturers who build ENERGY STAR homes are eligible to receive a $1,000 tax credit while modular home builders are eligible to receive a $2,000 tax credit by exceeding the International Energy Conservation Code (IECC) by 50 percent. This tax credit is set to expire in December of 2011.
• Taxation of “Carried Interest”: “Carried Interest” allows real estate investment trusts, private-equity firms and other partnerships to pay tax rates on their profits that are lower than rates paid by salaried and hourly workers. An increase in the tax rate will adversely affect our communities that are real estate partnerships and will have a profound affect on smaller developers/owners who are already feeling the ill effects of capital constraints in the marketplace.
• Mortgage Interest Deduction: Despite its popularity among homeowners, real estate agents, and builders, talk is building on Capitol Hill and in policy circles of scaling back or eliminating the mortgage-interest tax deduction. It was estimated by Congress’ Joint Committee on Taxation that between 2011 and 2013, this deduction will allow about $360 billion in potential tax revenue.
As Congress looks for ways to close the deficit gap, MHI staff will be monitoring these critical issues and coordinating a targeted grassroots effort.
Below is a summary of the key provisions of the bill:
Debt Ceiling Increase
The Act creates a two-step process for increasing the debt ceiling by an amount between $2.1 trillion and $2.4 trillion. Upon passage, the Act provides a $900 billion debt ceiling increase—$400 billion is immediate and an additional $500 billion is subject to a congressional joint resolution of disapproval that can be vetoed by the President—that will provide sufficient government borrowing authority through 2011.
The second increase —expected in early 2012—is contingent on Congressional approval of recommendations developed by the newly created Joint Select Committee on Deficit Reduction. If Congress approves recommendations that enact savings of $1.5 trillion, or alternatively, if Congress approves a Balanced Budget Amendment to the U.S. Constitution and sends it to the states for ratification, then the debt ceiling would be increased by $1.5 trillion.
The legislation places automatic spending caps on years 2012 through 2021. According to the Congressional Budget Office (CBO), these savings would amount to $917 billion over 10 years, starting with a $25 billion reduction in fiscal year 2012 and a $47 billion reduction in fiscal year 2013.
The overall spending cap for fiscal 2012 would be $1.043 trillion, $6 billion less than current levels. In order to avoid sacrificing domestic spending on behalf of more security spending, a “firewall” would be erected between security and non-security accounts for both fiscal years 2012 and 2013, essentially creating two separate spending caps for security and non-security spending.
Bipartisan Joint Congressional Committee
The bill requires the Joint Select Committee on Deficit Reduction to develop a proposal cutting the deficit by at least an additional $1.2 trillion over 10 years. The committee is required to report this legislation to Congress by November 23, 2011. The House and the Senate must vote on the proposal by December 23, 2011.
If the Joint Committee fails to produce a proposal containing at least $1.2 trillion in savings, a process is triggered that would automatically cut spending across the board.
The first automatic cuts would take effect January 2, 2013 and would fall equally on defense and non-defense accounts. Defense cuts and national security activities of several other agencies would be capped at $546 billion in fiscal 2013 and $556 billion in fiscal 2014. All other non-security funding—including military construction, Veterans Affairs and Homeland Security funding—would be capped at $501 billion in fiscal 2013 and $510 billion in fiscal 2014.
Medicare will also face limited cuts. Social Security, Medicaid, veterans and civil and military pay, funding for the wars in Iraq and Afghanistan and overseas contingency operations would be excluded.