News flash: Congress has a huge checklist to take care of. Many expiring tax provisions need to be dealt with, along with other temporary policies and the FY 2012 budget.
Doesn't this sound a lot like last year? Back in 2010, lawmakers had to deal with the 2001/2003 tax cuts, the doc fix, the AMT patch, unemployment insurance, tax "extenders", and FY 2011 appropriations -- in addition to a whole host of other non-budget-related issues -- in December.
Many had been counting on the Super Committee to include some of these provisions or or offset their costs in their plan, but obviously that is not an option anymore. Congress will have to deal with these issues themselves through the normal process.
These issues are:
- FY 2012 appropriations: Two weeks ago, Congress passed a three-bill "minibus" and included a continuing resolution through December 16 for the other nine appropriations bills. An attempt in the Senate to pass a second minibus failed, so it is increasingly likely that lawmakers will roll up the remaining nine into one package. This may be heavier to lift than Santa's sack, since among the nine are some appropriations bills -- such as Labor-HHS-Education and Financial Services -- that are magnets for policy riders.
- Unemployment insurance: The 2010 tax cut contained a 13-month extension of unemployment benefits that expires at the end of the year. Although there were frequent fights over paying for unemployment insurance (UI) in 2010, we have yet to see how this Congress will deal with the extension. Surely, there will be bickering between the House and Senate over if/how to pay for UI, but there has generally been enough commitment by Congress to get UI through despite that. CBO estimates that a one-year extension would cost about $44 billion.
- Doc fix: Last December, Congress passed a year long doc fix that was fully offset, mainly by changing the process for recovering overpayments of health insurance subsidies. This year, Medicare physician payments face a 30 percent cut in 2012 if nothing gets passed, making both the stakes and cost higher than ever. CBO estimates that a doc fix would cost $12 billion in 2012 and about $300 billion over ten years. We hope that lawmakers will follow the example of the most recent fix and offset the cost.
- AMT patch: The increased exemption for the Alternative Minimum Tax (AMT) will expire at the end of the year, reverting back to pre-2001 levels and hitting many middle- and upper-middle class households in the process. The AMT patch is certainly the most costly item that Congress will have to deal with as cumulative costs this of patching the AMT could total $700 billion, and about double that if the tax cuts are extended.
- Payroll tax cut: One of the stimulus add-ons to the 2010 tax cut was a decrease in the employee-side FICA tax rate from 6.2 to 4.2 percent. President Obama has proposed further lowering this rate to 3.1 percent, expanding it to employers, and eliminating the employer-side payroll tax for firms that increase their payroll. This policy from the American Jobs Act comes at a hefty price tag of about $265 billion. A simple one-year extension of the current 4.2 percent rate would probably cost in the neighborhood of $120 billion. The Senate is expected to vote this week on this provision alone, offset -- like other stand-alone pieces of the Jobs Act -- with a millionaire surtax.
- Tax extenders: The tax extenders are a group of narrowly targeted temporary tax expenditures that are routinely extended year after year (the most notable is the R&D tax credit, which has been temporary for 30 years). About 80 of them are set to expire at the end of this year. After having trouble passing an extension last year, lawmakers finally stuffed the extenders into the 2010 tax cut package. Individually, most of these extenders are small, but together, their ten-year cost could add up to hundreds of billions of dollars.
Just like last year, this December is a big month for the budget. Not only do this year's appropriations need to be finalized, but many costly temporary policies are due for extensions. Essentially, it is another end of the year where we see how many current policies become current law.