7 Budget & Tax Related Reasons We May Be Headed Towards A Government Shutdown

On Sunday, Forbes contributor Stan Collender boosted his estimate of the chance that there will be a government shutdown from 67% to 75%. With the new fiscal year just days away – beginning on October 1 – we still don’t have an appropriations bill.
The last time we were in this position was in 2013. On September 30, 2013, after Congress couldn’t agree on a spending bill, the country headed into the first government shutdown in 17 years. Since funds weren’t available to government agencies to keep the lights on, on October 1, 2013, the shutdown kicked in, forcing 800,000 federal workers out of work – including those at Internal Revenue Service (IRS) – and closing national parks and monuments.
As before in 2013, it would be great if we could boil down the disagreements over spending into one.big.thing but there are a number of complex issues at stake. The easy answer is, of course, that Congressional leaders can’t agree on a spending plan. Here’s what’s standing in the way:

  1. Sequestration. Democrats want to eliminate forced sequestration caps that were pushed through in 2012. Both Democrats and Republicans are generally on board with the idea of eliminating the across the board cuts but they disagree on how to best do it. Democrats want to keep increases in defense spending even with domestic spending while Republicans want only to increase military spending.
  2. Carried Interest. Repeal of the controversial tax break for carried interest has become a political target. The tax break allows investment managers to treat profits as capital gain rather than ordinary income. The Treasury Department has estimated that a complete repeal would bring in $18 billion over the next ten years. While originally touted by Democrats, a number of Republicans have endorsed the repeal over the last few weeks, including presidential hopefuls Jeb Bush and Donald Trump.
  3. Highway Trust Fund. The Highway Trust Fund has been losing money for years – but that wasn’t always the case. In 2005, the Highway Trust Fund actually had a surplus of $10 billion: now, it will need almost $15 billion each year in additional gas tax receipts to make up the hole. How to tackle the problem long-term has become a question that Congress can’t agree on: the Senate passed a multi-year extension this summer but the House has yet to agree.
  4. Cadillac Tax. The controversial Cadillac Tax, part of Obamacare, continues to plague members of Congress. Intended to be imposed on high-cost plans and related perks exceeding certain limits ($10,200 for a single person or $27,500 for a family per year with higher amounts for specific demographics), concerns have been raised about the numbers of taxpayers who might be affected. Some in Congress want to repeal the Cadillac Tax, which will go into effect in 2018, while others just want to bump the caps.
  5. Medical Device Tax. Yes, you’ve seen this before. The fight over the medical device tax was also a key issue leading up to the 2013 government shutdown and for good reason: repealing the medical device tax has been a rallying cry since 2010. Medical device companies have been pushing hard for repeal of the 2.3% excise tax on medical devices, which run the gamut from pacemakers to artificial hips to cardiac stents, couching the tax as an “innovation killer.” So why won’t Congress get rid of it? The tax is expected to raise nearly $29 billion in revenue and Congress can’t find an offset.
  6. Planned Parenthood. Conservatives in the Senate insist that they won’t sign any bill that includes funding for the organization which recently made news over allegations relating to its abortion practices. To try and contain the damage, Senate Majority Leader Mitch McConnell (R-KY) committed a bill to the Senate Committee on Appropriations with an amendment that would fund the government through early December and defund Planned Parenthood. The bill is not expected to pass. A backup bill would fund the government without touching the funding for Planned Parenthood.
  7. Timing. Sen. McConnell’s solution to the Planned Parenthood problem (see #6 above) doesn’t sit well with Democrats, who have indicated that they would not vote for any bill that only provided short-term funding. Any bill to avoid a shutdown should, Democrats insist, be for the full term.

This is a quick and dirty summary of some of the budget issues in a possible run up to the shutdown. It’s not meant to be a blow-by-blow account of what’s gone on to date (that would take pages) nor is it an exhaustive list of all of the related tax provisions keyed to the shutdown. It’s meant to give you a flavor of some of the major talking points surrounding the appropriations bills. As the details get worked out, I’ll have more.

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