More on the Tax Offsets and the Structure of the American Jobs Act
I wanted to start a new thread on this, because the mechanism for how the American Jobs Act gets paid for is kind of confusing. And even though this bill in total won’t see the light of day, I think it’s worth figuring out what the Administration is doing.
The text of the bill, submitted to Congress, is here. As you can see, it has all the jobs measures described before, along with the pay-fors discussed today. There are also Buy American provisions for the infrastructure projects, and a prohibition on hiring discrimination for the long-term unemployed. But right at the end – in fact, it’s the last section of the bill – is this:
SEC. 451. INCREASED TARGET AND TRIGGER FOR JOINT SELECT COMMITTEE ON DEFICIT REDUCTION.
(a) INCREASED TARGET FOR JOINT SELECT COMMITTEE.— Section 401(b)(2) of the Budget Control Act of 2011 is amended by striking “$1,500,000,000,000” and inserting “$1,950,000,000,000”.
(b) TRIGGER FOR JOINT SELECT COMMITTEE . – Section 302 of the Budget Control Act of 2011 is amended by redesignating subsection (b) as subsection (c) and by inserting after subsection (a) the following new subsection:
“(b) TRIGGER.— If a joint committee bill achieving an amount greater than “$1,650,000,000,000” in deficit reduction as provided in section 401(b)(3)(B)(i)(II) of this Act is enacted by January 15, 2012, then the amendments to the Internal Revenue Code of 1986 made by subtitles A through E of title IV of the American Jobs Act of 2011, shall not be in effect for any taxable year.”.
Let’s sort through what this means. Right now, the Super Committee must come up with $1.2 trillion in deficit reduction, and get that bill passed, or the trigger kicks in. The trigger would make cuts to discretionary programs as well as defense and Medicare providers. The target for the Super Committee is $1.5 trillion, because at that target level, the debt limit gets increased by a similar amount.
This amendment to the debt limit deal adds $450 billion, the approximate cost of the American Jobs Act, on top of that. So the target for the Super Committee to shoot for now becomes $1.95 trillion (I don’t think the debt limit will increase by $1.95 trillion as a result). Similarly, this basically adds to the trigger, with the provisions on the tax side. If the American Jobs Act passes, those tax-side provisions, raising $467 billion or so, would come into play. But they would be canceled if the Super Committee found $1.65 trillion in deficit solutions. It just creates a new trigger.
Given all this, it’s hard to say that the bill has a bunch of tax increasing offsets to it. It just punts the final decision back into the Super Committee. If the Super Committee found $1.65 trillion in all-cuts solutions, the tax stuff would go away. So these tax offsets create a nice talking point. But they wouldn’t go into effect automatically if the bill passed, as the Super Committee could still find a way around them.
Basically, the Administration wants the Super Committee to figure out how to pay for the jobs bill. They gave some suggestions today, but they don’t have to be taken.