On August 1st and August 2nd, Congress passed and President Obama officially signed into law the Budget Control Act of 2011, or S 365. The act sets a historic expectation for the federal government to produce at least $2.1 trillion in both budget cuts and debt limit increases over the next decade. While it is of the utmost importance for our government to reign in spending and control our ballooning deficit problems, the passing of this landmark legislation unfortunately addresses only a small portion of our enormous debt and opens the door to potential tax increases on many levels.
The House hurriedly and controversially passed the Budget Control Act of 2011 on a vote of 269 to 161. House leadership brought the bill to the floor without allowing congressional members and the public a 72-hour window to review the legislation. Before his takeover of the House, Speaker John Boehner promised that after the stimulus debacle the American public would be given ample time and a chance to review every piece of significant legislation that comes to a vote in the House. In fact, as a part of its takeover of Congress, the GOP incorporated “Read the Bill” language as a part of its Pledge to America campaign. Unfortunately, that promise was broken.
Sixty-six conservative members chose to go against leadership’s support of the bill. Their decision makes sense given that the legislation addresses budget cuts that equate to a meager 1% of the U.S. budget. What is most concerning about the deal is the establishment of a 12-member Joint Select Committee on Deficit Reduction that is tasked with finding sufficient cuts in government spending over a period of time.
Under the Budget Control Act, the debt ceiling will first rise by $900 billion and is set to rise again by either $1.2 trillion or $1.5 trillion depending upon the success of the Joint Committee’s ability to avoid a trigger established in the legislation that would cut spending automatically. The bipartisan committee will be made up of three Democrats and three Republicans from each chamber.
Every industry and business should pay very close attention to the decisions made within this committee. The savings it chooses to generate can come from spending cuts or tax increases.
The repeal of essential tax deductions that support domestic exploration and production of oil and gas is an issue that we discuss regularly. Provisions like the intangible drilling deduction, the domestic manufacturing deduction, and the percentage depletion deduction have been on the proverbial chopping block as potential future sources of government revenue for some time. But, now more than ever, we must ensure that they remain untouched throughout this spending cut and tax increase debate.
A growing economy means that businesses are flourishing and generating jobs, and that growth provides the tax revenues that pay for our government’s budget. What are essential to a solid economy are stable energy prices. Businesses can’t make money if most of their budget is swamped with energy costs. It’s no surprise that oil and gasoline prices spike prior to each economic recession that we have experienced as a nation. If Congress chooses to do away with these vital tax provisions, there is no doubt that domestic exploration and production will decrease, prices will rise, revenues will decline, jobs will be lost, and our debt issues will worsen.