Debt limit talks may affect tax reform efforts

Washington National Tax Services

Federal budget deficits and debate over proposals to increase the $14.3 trillion federal debt limit are expected to be a key focus of the Obama Administration and Congress this summer. The current debt ceiling was reached in May, and Treasury officials have informed Congress that "extraordinary measures" being undertaken to meet U.S. debt obligations will be exhausted by August 2.

There is general agreement on Capitol Hill that a debt ceiling increase will require companion legislation aimed at reducing the federal deficit. Vice President Joe Biden is leading bipartisan talks with House and Senate leaders, with a meeting being held today, but reaching a deficit reduction agreement remains a challenge. Administration officials continue to call for additional revenues to be part of any deficit reduction and debt limit package, but House and Senate Republican leaders oppose any tax increases and instead are looking only at spending reductions.

Notwithstanding the extensive debt ceiling discussions, both the House Ways and Means Committee and the Senate Finance Committee have been holding a series of hearings on tax reform principles and issues in general that will set the framework for development and analysis of concrete tax reform proposals. In addition, the Treasury Department has been working on tax reform concepts aimed at lowering the corporate tax rate without adding to the federal deficit; i.e., revenue-neutral. Treasury officials have indicated that the Administration will not consider corporate tax reform until after the debt limit debate is resolved.


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