January 3, 2013 will be the first day of the 113th Congress. Both newly elected and returning lawmakers will need to arrive at the office ready to work. There are a number of important issues that Congress should address in the coming year, including mortgage refinance and principal reduction, enhancements to the Community Reinvestment Act, and reforming the government-sponsored enterprise system responsibly. Yet, all of these issues are likely to take a back seat to the immediate push to enact comprehensive tax reform.
The outcome of these tax reform efforts will have very real consequences for all of us. If the tax deductions, cuts, and credits enacted by the American Recovery and Reinvestment Act and the so-called “Bush tax cuts” are allowed to expire, every household can expect a sizeable increase in their tax bill. Not surprisingly, low- to moderate-income households and communities of color are likely to be among the hardest hit.
Tax reform could potentially have broad implications for community development, affordable housing, and homeownership. With both Democrats and Republicans agreeing that tax reform is necessary, Congress has already taken the first step by demonstrating a bipartisan interest. The second step will be for Congress to develop a framework, or a generally agreed upon set of strategies and goals, that will inform how the individual tax provisions are written. Deciding on a framework will be hard fought, as it will require Republicans and Democrats to reconcile their very different philosophies about how reform should occur. The Administration and Congressional Democrats believe that a big part of the solution is to increase tax rates on those who earn significantly higher incomes and to reduce some tax expenditures. Congressional Republicans, however, tend to reject tax increases and prefer that additional revenue come from tax cuts which they argue generate economic growth for businesses.
Once Congress agrees to a basic framework, the actual work of drafting new tax code language will fall to various House committees. It is a possible that no actual language will be proposed until the end of 2013, or even early 2014. The only certainty is that a legislative stalemate is not the solution.
