No Super Committee Action: Now What?
Now that the so-called ‘super committee’ failed to agree on spending cuts and/or revenue gains to reduce the deficit, what’s next? What does this mean for the estate and gift tax law?
Under the law that created the super committee, their failure to act means that mandatory spending cuts of $1.2 trillion kick in, but not until fiscal year 2013 (i.e., October 1, 2012). According to the Office of Management and Budget’s OMB Watch FAQs (available online at http://www.ombwatch.org/files/budget/debtceilingfaq.pdf):
‘If the Super Committee does not produce a report or if the report does not become law . . . then spending will be lowered by $1.2 trillion, with $109.3 billion in cuts per year (beginning in FY 2013), half of which, $54.7 billion, comes from the Defense Department and the other half from the rest of the budget. These cuts affect both mandatory and discretionary spending with proportionate cuts to both, but Social Security and Medicaid are protected while Medicare providers would see, at most, a two percent reduction in payments.’
Given that these mandatory cuts do not take effect until October 1, 2012, it is very possible that difficult fiscal decisions will be deferred until after the 2012 elections.
How does this impact the gift and estate tax law? As you may recall, in December 2010 Congress increased ‘ for two years only ‘ the federal estate and gift tax exemption to $5 million per person. Thus, unless Congress acts to extend or otherwise change the law, the federal estate and gift tax exemption will revert to $1 million per person on January 1, 2013. While no one knows what will happen or when, given their difficult task of reducing the deficit it is possible that Congress may just let the two-year law expire, so that the exemption falls to $1 million.
Sadly, this uncertainty only clouds the real issue: that we all need to do estate planning regardless of the estate tax.