Super Committee Update

With a November 23 deadline looming, we though it would be a good time to update you on the status of the super committee and their discussions to come up with a plan to reduce the deficit.  Back in August I wrote an article about the committee and what they were trying to accomplish.  Here are answers to some questions you might have right now:

What is the November 23 deadline?  If the committee can’t reach agreement by November 23 on a package that would cut the deficit by at least $1.2 trillion, automatic cuts of $1.2 trillion would kick in starting January 2013.  These cuts would be across the board to both defense and non-defense and would have a dramatic impact on our country. 

Where does the committee stand right now?  As with all political dealings, it really depends on who you talk to.  For every report that progress is being made, there seems to be another report that the talks have stalled.  Some progress has been made between the democrats and republicans but there is still a wide gap. 

What will happen to taxes?  Again it’s impossible to tell what is going to happen as a result of these discussions but it’s clear that taxes will play an important role in coming up with a solution.  The Republicans have proposed lowering the top tax rate while eliminating many popular deductions and making steep cuts to entitlement programs.  The Democrats would like to see increased tax rates for the wealthy and more balance between the tax increases and the spending cuts.  It is widely believed that if an agreement is reached, the committee could leave the difficult tax decisions to the House Ways and Means and the Senate Finance Committees.  They would simply set targets and policy parameters for a tax rewrite next year.  So even if an agreement is reached, we may still be left in the dark on the future of tax laws.

What about the $5 million estate and gift tax exemption?  There have been some rumors that there could be an early reduction of the $5 million estate, gift and generation-skipping transfer tax exemption.  It is currently set at $5 million through December 31, 2012 but will revert to $1 million barring further congressional action.  The rumors say that the exemption could be reduced as early as November 23, 2011 or January 1, 2012.  If you have considered taking advantage of this increase in the exemption, NOW is the time to move forward on this planning.  If you are wondering what this means, read Lyle’s article from back in February on this opportunity.

What happens if no agreement is reached?  While we would like to think this is a long shot, it certainly has to be considered.  If no agreement is reached we would expect more market volatility similar to what we saw in August and possibly even another downgrade of the US debt. 

As always we will continue to monitor the progress of the super committee and will let you know when and if an agreement is reached.  Stay tuned!

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