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Washington Watch - June 29, 2011

Debt Talks Grind To A Halt

Key Republican leaders walked out on deficit reduction negotiations with Vice President Joe Biden last week and that's when President Obama and Speaker of the House John Boehner (R-Ohio) ceased meeting to discuss where talks should go from there. Since the breakdown, the Speaker and the President have not met again, as the House is on recess for the July 4th holiday. The Senate, which does not go into recess until next week, is still hammering away on the issue. 

Senate Majority Leader Harry Reid (D-Nev.) called out Republicans for their refusal to combine budget cuts with revenue raisers. The White House has communicated a desire to end tax breaks for oil and gas companies, as well as breaks for corporate jets.

The deadline for parties to come to an agreement on the FY2012 budget is August 1, when U.S. Treasury Secretary Tim Geithner said the country would begin defaulting on its financial obligations. The current debt limit is set at $14.3 billion. Both parties are working to figure out what can be done to the current budget to allow for a debt ceiling increase, all while working to decrease the national debt.

Washington Watch will continue to report on this situation as it develops.

IRS Increases Mileage Rate To 55.5 Cents Per Mile

The Internal Revenue Service announced an increase in the optional standard mileage rates for the final six months of 2011. 

The rate will increase to 55.5 cents a mile for all business miles driven from July 1, 2011, through Dec. 31, 2011. This is an increase of 4.5 cents from the 51 cent rate in effect for the first six months of 2011.

In recognition of recent gasoline price increases, the IRS made this special adjustment for the final months of 2011. The IRS normally updates the mileage rates once a year in the fall for the next calendar year. While gasoline is a significant factor in the mileage figure, other items enter into the calculation of mileage rates, such as depreciation and insurance and other fixed and variable costs.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

For your tax questions, contact the experts at the NASE here.

Congress Continues Hearings Regarding Federal Deficit

On June 23, the U.S. Senate Committee on Finance held its fourth hearing examining the choices surrounding the budget and reducing the federal deficit, entitled “Health Care Entitlements: The Road Forward.”

Both Democrats and Republicans agreed on the need for healthcare reform, but disagreed on how to achieve it. Committee Chairman Max Baucus (D-Mont.), said Medicare and Medicaid will grow to about 33 percent of total federal spending by 2035, almost triple the percentage today. He added that a variety of factors are to blame for this, including inefficiencies and demographic challenges. Meanwhile, Ranking Member Orrin Hatch (R-Utah), said the current debt spiral is the greatest challenge to the nation’s national security, and that Congress must set broad guidelines and define budgets in order to empower states to run their Medicaid programs.

Governor Deval Patrick (D-Mass.), said the state has cut spending and increased sales tax  in order to weather the fiscal crisis. He lent support for the Affordable Care Act because he believes it will allow more people to receive care in primary care settings as opposed to emergency rooms, which is more cost effective. Meanwhile, former Governor of Kentucky, Ernest Fletcher (R) said states should be allowed more flexibility in Medicare and Medicaid rules, and that patients in Appalachia have very different interests than those in New York.

Meanwhile, talks between the Republican-led House Committee on Budget and President Obama continued, with health care entitlements on the agenda. During the hearing, Chairman Baucus said the Republican proposed budget would eliminate benefits for citizens and cut more than $700 billion from nursing homes and other Medicaid services. Patrick said the budget would repeal the Affordable Care Act and deny coverage to millions of working Americans.

Read more about the hearing here.

Panelists to Lawmakers: Tax Reform Will Spur Foreign Investment

Reform will generate foreign investment was the common thread linking the testimonies during the June 23rd Ways and Means Committee hearing on Tax Reform and Foreign Investment in the United States

Led by Chairman Patrick J. Tiberi (R-Ohio) of the Select Revenue Measures Subcommittee, the hearing was called to examine tax code issues related to foreign-owned subsidiaries in the United States. The hearing reviewed rules specifically related to Section 163(j) of the tax code, the impact of the Foreign Investment in Real Property Tax Act (FIRPTA) of 1980, and tax competitiveness.

The dual-panel hearing included Alexander Spitzer, a Senior Vice President at Nestle Holdings, who spoke his concerns about disadvantage of U.S. restrictions on the ability to deduct interest and borrow. Spitzer echoed the panelists’ push for reforms to Section 163(j) that limits tax deductions a company can take on loans from its parent company to conduct business in the U.S. While unable to quantify the indirect job creation of Nestle’s U.S. subsidiaries, he assured the committee that indirect jobs would continue to benefit from foreign investments due to Nestle’s contracts with third-party packaging and transportation companies.

Jeffrey Deboer of the Real Estate Roundtable pressed the committee for FIRPTA reforms necessary for the infusion of equity capital in commercial real estate. 

Answering questions from Ranking Member Richard E. Neal (D-Mass.), Deboer continued to testify that the reforms would not only create construction job opportunities surrounding the revitalized commercial properties, but would also ease the pressure on the balance sheets of community banks, freeing capital for small businesses loans.

While agreeing about the benefits of a lower corporate tax rate, Gary Hufbauer of the Peterson Institute for International Economics voiced a minority opinion about the issue of untaxed, or ‘homeless,’ income of foreign companies with state-side subsidiaries. He maintained the role of the United States should not be as “tax police” but instead, respecting the sovereignty of outside nations regarding their tax rates and corporate residency definitions. 

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