The Next Inflection Point in Tax Reform?

Published by Michael Novogradac on Wednesday, April 13, 2011 - 12:00am

If you are wondering what the future of tax reform is, and more specifically, the future of various tax credits, including the low-income housing tax credit, the new markets tax credit, the historic tax credit, and renewable energy tax credits, look to the coming vote on increasing the debt ceiling.

Yes, the congressional vote on increasing the debt limit will be a (maybe THE) key inflection point. 

That debate most certainly will include additional agreement among the House, Senate and President on how to address the budget deficit and long term increases in U.S. debt.  This agreement will likely have some broad guidelines regarding tax reform and tax increases (I mean “revenue enhancements”).

May 16th is the approximate date the U.S. reaches its debt limit.  There is borrowing legerdemain that Treasury can use to delay actual default beyond that date, for a few weeks.  It has unclear when the actual limit would ultimately be reached.

Between now and then, I see two key events:

  1. President Obama’s speech today on the deficit.
  2. Early May, after the next congressional recess, either the Gang of Six in the Senate release their deficit plan, or the Senate Budget Chair releases his. 

Then, with the House having already proposed a plan, and President Obama and the Senate formally in the debate, the hard discussions can begin.

The backdrop for those hard discussions will be a possible government default. Remember the government shutdown backdrop?

Stay tuned.  Hold on to your hats.  It will be a wild ride.