Senate Democrats have presented their official plan to avoid the sequester, unveiling a bill Thursday that would replace the across-the-board budget cuts for 10 months. The bill, called the American Family Economic Protection Act, includes $110 billion in savings, balanced evenly with spending cuts and new revenues.
The plan would raise approximately $54 billion in revenues by implementing of the so-called “Buffett Rule,” which sets a minimum 30 per cent tax rate on income above $1 million. This proposal has so far been a non-starter among Senate Republicans, who moved to block debate on similar Buffett Rule legislation last April.
The new bill would also raise nearly $2 billion in revenue by closing loopholes in the tax code for oil companies, and about $1 billion by ending tax breaks for companies that ship jobs overseas.
Of the spending cuts, approximately $27.5 billion would come from the defence budget, while the other $27.5 billion would come from agriculture funding.
While its unlikely that Senate Democrats will get the five Republican votes they need to avoid a filibuster, the legislation is the first attempt the Senate has made to replace the sequester.
Earlier Thursday, Republican House Speaker John Boehner slammed Senate Democratic leaders for their inaction, and said he would not act on the sequester unless the Senate moved first.
White House Press Secretary Jay Carney released a statement saying the White House would support the measure.
“Now, Republicans in Congress face a simple choice. Do they protect investments in education, health care and national defence or do they continue to prioritise and protect tax loopholes that benefit the very few at the expense of middle and working class Americans?” Carney said in the statement.
Here’s the outline of the full bill:
American Family Economic Protection Act
The American Family Economic Protection Act would eliminate through January 2, 2014, any of the deep, across-the-board spending cuts known as “sequestration.” These cuts, if left in place, would threaten thousands of jobs and weaken the economic security of America’s middle class. These cuts would also would kick 70,000 children off of Head Start, reduce loan guarantees to small businesses, cut food inspections, and result in 1,000 fewer law enforcement agents, among other effects.
Although it would eliminate sequestration for the remainder of 2013, the American Family Economic Protection Act would not increase our long-term deficit. All costs would be fully offset in a balanced way. 50 per cent of the costs would be offset with other spending cuts, divided equally between defence and non-defence programs. The other 50 per cent of costs would be offset with new revenue generated by adopting the Buffett Rule — which ensures millionaires cannot pay a smaller share of their income in taxes than typical middle-class families — along with other provisions that would eliminate an oil industry tax loophole and deny deductions to companies that ship jobs overseas.
The bill’s major provisions include:
The American Family Economic Protection Act fully protects the defence Department, like other Federal agencies, from sequestration until January 2, 2014. Throughout 2013, no sequester would be implemented, and the existing limits on security-related spending would continue to apply.
20-five per cent of the overall costs of suspending sequestration would be offset by very modest reductions in the overall level of defence spending in the future. These reductions would total $27.5 billion, or 0.5 per cent of defence spending between Fiscal Years 2013 and 2021. The reductions would not begin until Fiscal Year 2015, when the war in Afghanistan is expected to end.
The cuts would be spread out in relatively modest increments over 7 years, through Fiscal Year 2021, and would allow defence spending to increase by at least two per cent in each of those years, even after the reduction. The reduction would be about $3 billion in Fiscal Years 2015 and 2016, and then would rise slowly to a high of about $5 billion in Fiscal Year 2021.
The American Family Economic Protection Act saves $27.5 billion over 10 years by cutting farm subsidies and extending certain Farm Bill programs that were left out of the recent Farm Bill extension.
The bill ends direct payments, which are currently provided regardless of yields, prices, or farm income. This provision saves approximately $31 billion. Of that total, $27.5 billion is used for deficit reduction. The remaining $3.5 billion is used to pay for the extension of Farm Bill programs that were left without funding, including renewable energy, rural development, disaster assistance, conservation, hunger prevention, agriculture research, organic certification, and specialty crop programs.
The Buffett Rule
The American Family Economic Protection Act would adopt the Buffett Rule, which would ensure that wealthy taxpayers cannot pay tax at a lower effective tax rate than middle class families. The bill applies the Buffett Rule to taxpayers with adjusted gross incomes greater than $1 million — after subtracting charitable contributions — who are paying less than a 30 per cent average tax rate in combined income tax, alternative minimum tax, and the employee’s portion of the payroll tax. Specifically, the Act would require these taxpayers to pay a 30 per cent tax on all of their adjusted gross income (less charitable contributions), phased in between $1 million and $2 million. This provision would reduce the deficit by approximately $54 billion over 10 years.
Ending Tax Breaks for Shipping Jobs Overseas
The American Family Economic Protection Act eliminates a tax break that encourages companies to ship job overseas.
Companies may generally deduct ordinary and necessary business expenses. Under current law, these can include the cost of shipping equipment overseas, terminating leases, and other expenses associated with moving a business offshore. The legislation would deny tax deductions for outsourcing costs — the costs of relocating a U.S. business unit to a foreign country. This provision would reduce the deficit by less than $1 billion.
Closing an Oil Industry Tax Loophole
The American Family Economic Protection Act eliminates a special tax loophole now enjoyed by the oil industry. Specifically, the Act would include oil from tar sands among the petroleum products that are subject to taxes that support the oil spill liability trust fund.
In January of 2011, the IRS determined that the definition of crude oil for purposes of the oil spill liability trust fund does not include tar sands or oil sands. Yet there is no good reason for this special exclusion. Tar sands are refined using the same processes as those used in the refining of crude oil, and oil spill liability trust fund revenues are used to clean up oil spills from oil derived from tar and oil sands. No distinction exists between finished products refined from crude oil or those refined from tar sands. This provision would reduce the deficit by approximately $2 billion over 10 years.
The American Family Economic Protection Act would delay from March 1, 2013 to January 2, 2014 the across-the-board cuts, or sequester, that was triggered under the Budget Control Act when the so-called “Supercommittee” failed to produce legislation that reduces the deficit. This delay recognises that the Act fully offsets the sequester in fiscal year 2013 and offsets approximately $25 billion in fiscal year 2014. The Act exempts its budgetary effects from the PAYGO scorecards and makes several technical and conforming changes to the Balanced Budget and Emergency Deficit Control Act of 1985.
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