Last week President Obama signed into law the Bipartisan Budget Act of 2013, which had earlier broken through the partisan budget logjam in Washington by passing the House by a vote of 332-94 and the Senate by a vote of 64 to 36.

The achievements of the bill were minor in spending changes and revenue raised but significant in that the bill represented the first bipartisan budget passed by a divided Congress in 27 years.

The bill sets spending limits for FY 2014 and FY 2015, eliminating the need for Congress to pass another budget until after September 2015. The provisions of the bill, in brief, include:

  • Discretionary spending in 2014 will increase from the scheduled US$967 billion to US$1.012 trillion
  • US$28 billion in savings was generated by extending the sequester into FY 2023
  • A three-month “Doc Fix” postponing, until the end of March 2014, 20% cuts in Medicare physician reimbursement rates and reductions in other reimbursement amounts for related providers
  • US$63 billion in savings was generated by new cuts and fees, such as:
  • modifying Medicaid third party liability
  • repealing the Ultra-Deepwater and Unconventional Natural Gas and Other Petroleum Resources Research Program
  • increasing federal employee contributions to their retirement programs by 1.3 percentage points
  • increasing Transportation Security Administration fees for passenger air travel
  • increasing private company premiums for the pension benefit guarantee corporation

Although it is largely assumed that the threat of another government shutdown has been eliminated since the budget caps are now set and agreed upon, Congress must still pass appropriations bills by January 15, 2014, in order to continue funding the operations of the federal government. In addition, Congress will need to again address the “Doc Fix” by the end of March 2014 and increase the U.S. debt ceiling by late February to mid-March, so it is virtually certain that we will see additional partisan struggles in Congress during the first part of 2014.

Lastly, though we do not expect a major tax reform bill to move through Congress in the coming months, there will be pressure on Congress starting early in 2014 to extend many of the dozens of tax provisions that are expiring at the end of 2013. These include:

  • credit for research and experimentation expenses
  • work opportunity tax credit
  • new markets tax credit
  • 50 percent bonus depreciation
  • subpart F exceptions for active financing income
  • under construction deadline for the renewable energy (wind, biomass, etc.) production tax credit
  • biodiesel, renewable diesel, and alternative fuel credits
  • energy efficient commercial building deduction
  • alternative fuel vehicle refueling property credit
  • 15-year recovery for qualified leasehold, retail, or restaurant improvements
  • special expensing rules for film and television production
  • individual deduction for state and local sales taxes
  • above-the-line deduction for expenses of elementary and secondary school teachers
  • special rules for contributions of capital gain real property for conservation purposes
With this pressure, and the need for Congress to address the "Doc Fix" by the end of March, as well as the debt ceiling by February or March, it is very possible that Congress will try to address all areas at the same time. Because, however, the House in particular is not likely to accept a simple extension of expiring tax provisions, we believe it is possible that Congress will have to legislate reforms to tax provisions, which could give rise to a “tax reform lite” bill. It is therefore advisable to be vigilant in protecting interests and seeking reforms in U.S. tax provisions should this opportunity (and threat) arise.