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Worldwide ERC and AMSA Educate Super Committee About Moving Expenses

In Short: 

Worldwide ERC and AMSA have written to members of a special congressional committee charged with finding a bipartisan way to cut the deficit by at least $1.5 trillion to make sure the Committee understands the importance of the moving expense deduction to jobs and the economy.  The two organizations have also prepared background papers supporting the deduction, which will be provided to Committee members and their staffs.  The special committee is expected to propose tax changes along with spending cuts.

The Full Story:

Today’s tax quote:  “The Congress is a circus.  To the music of braying donkeys, each elephant is led in circles by the tail of another.  While they have the people’s attention, the clowns make the tax laws.”  Jim Boren (former Senator from Oklahoma). 

Seeking to forestall any tax changes to the moving expense deduction that would not be at all amusing to the Mobility industry, on September 28, 2011, Worldwide ERC and the American Moving and Storage Association (AMSA) sent letters to Co-Chairs Patty Murray (D-WA) and Jeb Hensarling (R-TX) and the other ten members of the Joint Select Committee on Deficit Reduction to begin the process of explaining to the Committee the importance of the moving expense deduction to jobs and the economy.

The Committee (sometimes referred to as the “Super Committee”) was formed as a part of the deal that ended the stalemate over the federal debt ceiling, and is charged with sending to the full Congress by November 23 a plan to reduce the deficit by at least $1.5 trillion.  The Committee consists of 12 members, three each from each party in both the House and Senate.  Under the law, an up or down vote is required in  both House and Senate on whatever plan the Committee introduces, and passage is required by December 23.  Assuming that the plan does not pass, the law goes on to require Congress to enact legislation by January 15, 2012, reducing the deficit by at least $1.2 trillion over the next ten years. 

If Congress fails to enact the required legislation, the law imposes automatic across-the-board cuts to all federal programs, beginning in 2013, with some exceptions.  The exceptions include, for example, Social Security and Medicaid.  However, most defense programs are not exempted, nor are most social programs.  The thought behind this rule was that neither party would be able to stand the pain of cuts to programs dear to its heart, and that the shared pain would result in a compromise solution to cut the deficit by the required amount. 

Fundamental tax reform is within the Committee’s jurisdiction, and it is likely that tax changes will be a part of whatever it recommends.  It is not clear what form those changes might take, but several members of the Committee are also members of the tax-writing committees in the House and Senate, and the staff director chosen by the Committee is the Republican Chief Tax Counsel for the Senate Finance Committee.  The Committee has already held hearings to gather suggestions for tax changes.  Consequently, it seems likely that some tax changes will be included in whatever the Committee proposes.

The Administration has proposed allowing the 2003 tax cuts, which were extended through 2012 by legislation enacted in 2010, to expire for those earning over $200,000, and also limiting itemized deductions for those taxpayers.  The Administration has also targeted a number of corporate tax preferences for elimination, all of which have strong defenders. Republicans have strongly opposed these ideas so far, but it is still possible there could be movement in that direction.  

More likely, however, is tax reform along the line of the proposals made last year by the President’s bipartisan National Commission of Fiscal Responsibility and Reform.  The Commission’s tax proposals focused on eliminating so-called “tax expenditures” in the tax code so as to broaden the tax base, reduce overall rates, but still raise some revenue for deficit reduction.  In tax policy-speak, “tax expenditure” refers to any item in the Code which allows a special exclusion, exemption, or deduction from gross income, or which provides a special credit, preferential rate of tax, or a deferral.  “Special” refers to departure from a “normal” income tax system, which would contain a number of basic deductions, exclusions, etc, necessary to fairly measure taxable income.  For example, ordinary business deductions are not considered tax expenditures, but special deductions such as accelerated depreciation are tax expenditures.  Personal exemptions and the standard deduction are not tax expenditures.  There is, however, considerable controversy as to what should be considered a tax expenditure, and the annual estimates produced by the Congressional Joint Committee on Taxation and by the Treasury Department’s Office of Tax Analysis differ considerably because the two offices use a different concept of what is a “normal” tax system.  All of which suggests that the task of eliminating “tax expenditures” is not as simple as the Deficit Reduction report makes it seem, even if none of the existing tax expenditures had any political support, which obviously is not the case.

From the perspective of the Mobility industry, tax expenditures would include at least the mortgage interest deduction, the exclusion for capital gain on home sale, the deduction for state and local property taxes, and the exclusion for foreign earned income and political support, is sure to be debated since it is one of the largest single tax expenditures ($573 billion over five years).  Worldwide ERC expects to support the National Association of Realtors (NAR), and others who traditionally defend the mobility-related provisions listed.

The classification of the moving expense deduction as a “tax expenditure” is not as clear.  The Joint Tax Committee list of tax expenditures includes the exclusion for “miscellaneous fringe benefits,” which it is assumed includes the moving expense exclusion, but Treasury includes neither the miscellaneous fringe benefits, nor the moving expense deduction, in its estimates of tax expenditures.  It has always been Worldwide ERC’s position that the moving expense deduction should be considered business related, not a tax expenditure, and necessary for a fair calculation of income under a normal tax system. 

Given this background, however, ERC and AMSA believe it is now necessary actively to educate the Super Committee on why retention of the moving expense deduction is necessary and important.  In addition to the letters to Committee members, ERC and AMSA have prepared a couple of short background papers concerning the deduction, which are available on the ERC website at http://www.worldwideerc.org/gov-relations/us-tax-legal-resources/Pages/Moving-Expense-Information.aspx, and http://www.worldwideerc.org/gov-relations/us-tax-legal-resources/Pages/Moving-Expense-Deduction.aspx. 

It is anticipated that ERC/AMSA’s activities will also include a series of personal briefings for staff members of the Committee members, along with distribution of the background papers.  In addition, it is hoped that other organizations interested in housing and mobility will add their voices in support of the moving expense deduction.

Worldwide ERC is hopeful that the moving expense provisions will not actually prove to be at issue, but believes taking action now will help to assure that result.  Members will be kept informed. 

Posted by Peter K. Scott

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