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e-news December 10, 2010


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The Week Just Past: Is the Tax Rate "Compromise" Permanent?

Outline of the Tax Extension Framework Agreement

House Budget: Nine Weeks Late and Billions of Dollars Too Big

Obamacare Ends Drug Discounts For Children's Hospitals

International Trade: One Down, More to Go!

The Week Just Past: Is the Tax Rate "Compromise" Permanent?

"The President and Republican Leaders this week unveiled the framework of a legislative "compromise' that will extend the current tax rates for all Americans and give economic recovery and job creation a chance.

"Preventing a massive tax increase on families and small businesses is my number one priority. The failure to reach and pass an agreement preventing a tax hike by the end of the month would have been devastating for families and to small businesses, America's job creators. In fact, the delay in reaching an agreement has been a major contributor to the lack of consumer confidence.

"But like any compromise, I cannot agree with all of it. Clearly, I would have written the final "deal' differently.

"For example, the temporary nature of the current tax rate extension is a problem. I introduced legislation to make permanent all of the current tax rates, thus avoiding a crippling tax increase, because I recognize that our economy does not run on temporary, stop-gap half-measures. In order to invest and grow their companies for the future -- creating private sector jobs in the process -- businesses of all sizes need predictability in the tax code. They need certainty in order to plan their operations and workforce expansion. In order to spur job creation, all the tax rates should be extended as far as the eye can see!

"In addition, this so-called "compromise' adds significant new federal spending at a time when we should be cutting government expenditures, not increasing them.

"The final vote on this tax package is probably days away. And I suspect that "compromise' announced this week will not be the final version of this legislation on which we will be asked to vote. I anxiously await the outcome of ongoing deliberations."

Outline of the Tax Extension Framework Agreement

2001 and 2003 Income-Tax Rates & Alternative Minimum Tax (AMT)
All of the 2001 and 2003 tax rates are extended for two years. This protects working families and small businesses from being hit with a job-killing tax increase on January 1. Additionally, there is an AMT "patch" to ensure that an additional 21 million households will not be hit with a stealth tax increase.

Estate Tax Relief.
The framework prevents the estate tax from snapping back to a $1 million exemption and 55% top rate. Instead, the agreement includes a $5 million exemption and a top rate of 35% for 2011 and 2012.

Elimination of the Make Work Pay Credit and Creation of a Payroll "Tax Holiday".
The President's signature Make Work Pay Credit will expire. In its place, a 1-year payroll tax holiday is implemented. Workers pay a 6.2 percent payroll tax that is matched by a 6.2 percent tax paid by employers for a total 12.4 percent tax. This provision will reduce the employee share by 2 percentage points -- down to 4.2 percent.

Expensing for Businesses.
There is a new provision that allows businesses to expense 100% of property put in service next year and take a 50% bonus depreciation for 2012. Also included will be a package of tax extenders important to both businesses (like the tax credit for research and development) and individuals (such as the deduction for state and local sales taxes).

Continuation of Unemployment Insurance.
Continues through the end of CY 2011 Federal unemployment insurance (UI) programs that contribute to the current up to 99 weeks of total UI benefits payable per person. Despite some media reports, no one will be eligible for more than 99 weeks of total UI benefits, just like today.

Recommended Reading: Monday's editorial in the Wall Street Journal, "The Walking Death Tax."

House Budget: Nine Weeks Late and Billions of Dollars Too Big!

We are now nine weeks past the beginning of the new fiscal year and Congress has yet to enact a single Appropriations bill. Out of 12 total FY 2011 bills, two have passed the House while ten bills were never even considered by the full Committee.

"This represents an historic breakdown of Congress' responsibility," said Rodney, New Jersey's senior member of the House Appropriations Committee. "The current Majority's leadership has failed to accomplish the basic mission of funding the agencies of government, including the Departments of Defense and Homeland Security!"

The House finally passed a stop-gap funding measure this week. However, the proposal was full of bloated spending and many extraneous policy provisions that have never been fully debated in public. New program funding levels and legislative riders just somehow magically appeared in this bill.

Over the past three years, non-defense, non-homeland security, and non-veterans affairs, discretionary spending has increased by a staggering 88 percent. In the meantime, the nation's debt has risen to $13.4 trillion, the deficit stands at $1.3 trillion, and unemployment has been at or above 9.4 percent for 18 consecutive months. This bill does very little to reverse this trend and instead continues the unsustainable, high rate of spending.

In addition, Rodney, a member of the Defense Appropriations Subcommittee, criticized the bill's significant cut in military spending.

"While I freely admit that all spending, including Defense spending, must be on the table as we look to reign in these historic deficits, we must proceed wisely, especially when our troops are engaged on the battlefield," Rodney said. "Unfortunately, the House bill short changes our troops at a time we should be supporting them. At a time when we should be providing our troops - all volunteers - the resources they need, this bill uses defense funding as a piggybank for the new domestic priorities."

Obamacare Ends Drug Discounts For Children's Hospitals

Treatments for rare childhood illnesses will now be more expensive because of the new health care law. Wasn't the health law supposed to end discrimination based upon pre-existing conditions?

The New York Times reported this week: "In an unintended consequence of the new health care law, drug companies have begun notifying children's hospitals around the country that they no longer qualify for large discounts on drugs used to treat rare medical conditions. As a result, prices are going up for these specialized "orphan drugs,' some of which are also used to treat more common conditions."

Read Robert Pear's piece here.

Trade: One Down, More to Go!

The Obama administration has finally agreed to a major trade agreement with South Korea.

"The free-trade agreement between the United States and South Korea is two years overdue and an important step for our economy and for getting people back to work," Rodney said. "Not only will it result in more opportunities for American companies to compete and create private sector jobs, but it will also ensure that America will continue to be a leader in the global economy by making exports more competitive in that region."

The International Trade Commission has estimated the U.S.-Korea pact could increase U.S. exports by as much as $11 billion through tariff cuts alone. At a time when the "official" unemployment rate stands at nearly 10 percent, the Korean trade agreement could sustain tens of thousands of U.S. jobs.

President Obama pledged in his State of the Union address last year that he would seek to double U.S. exports over the next five years.

"Increasing exports is vitally important for our New Jersey economy," Rodney said. "Our Portof New York and New Jersey is a major gateway for our region. Each year, $80 billion in commerce flows through the port. Total exports from New Jersey have increased by $8.1 billion over the past five years.

The latest data show 130,500 jobs in New Jersey depend on international trade. Of these, 50,500 are manufacturing jobs. Approximately one of every six manufacturing jobs in New Jersey is directly connected to global trade. "Clearly, exports are important to manufacturing workers and we must act to boost more such jobs," he said.

The agreement also has national security implications, a point underlined by North Korea's strike against a South Korean island last month. Implementation of the South Korea Free Trade Agreement is clearly in the best interests of the United States. But so also is implementation of two other free trade agreements that have been languishing for years -- pacts with Colombia and Panama.

Our international competitors have not been idle. As Congress delayed, the European Union and Canada are working on agreements with Colombia. China has six FTAs implemented, and is negotiating agreements with dozens of additional countries and regions around the world. This will put American exporters -- including New Jersey workers - at a distinct disadvantage.

Recommended Reading II: Nick Anderson writing in the Tuesday Washington Post, presents a good read on the state of U.S. education relative to other nations, "U.S. Students in the middle of the global pack."

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