Ryan Takes Speaker’s Chair As One Deadline Remains

Last week was an uncharacteristically busy one in Washington. The White House and Congress – led by outgoing Speaker Boehner – reached an agreement on aggregate government spending through 2017. The agreement includes a corresponding increase in the nation’s debt limit, eliminating talk of a government default during the election season. With the budget deal passed, Boehner departed, leaving the Speaker’s chair to Paul Ryan.

A quick summary of the main points of the compromise:

• Spending on defense and spending on domestic federal programs are each increased in the aggregate by $40 billion over two years ($80 increased spending total).
• The legislation corrects a 50% Medicare Part B premium increase. That increase was about to hit higher income taxpayers -- about 30% of retirees -- due to a quirk in the way premium increases are borne when there is no corresponding increase in Social Security benefits.
• The legislation rectifies an impending depletion of the Social Security disability fund by shifting money from the general Social Security retirement account.
• The agreement includes no substantive income tax increases, including any “loophole closers”. The legislation purportedly pays for the additional spending in other ways, although critics question whether Washington is funding additional spending through “smoke and mirrors.”
• The compromise does eliminate popular Social Security planning opportunities, known as “file and suspend” strategies, which can permit a non-working spouse to receive benefits while the primary wage earner suspends his or her benefits and continues to work. A spouse (or dependent child) currently receiving spousal benefits under “file and suspend” will have the arrangement terminated next spring.

The deal is quite remarkable given Washington’s perennial contentiousness. But it provides only gross spending numbers for defense and domestic programs. Before December 11, Congress must apportion those numbers among the various agencies in an appropriations bill to avoid a government shutdown.

That might not be a smooth process. Some House Republicans continue to insist that the final appropriations legislation defund Planned Parenthood and perhaps other initiatives favored by the White House, prompting a presidential veto. Paul Ryan has promised not to introduce legislation that a majority of House Republicans does not support, eliminating the possibility of passing an appropriations bill with the support of Democrats and moderate Republicans as Boehner typically did to keep the government running. Boehner’s willingness to disenfranchise his caucus cost him his job. Ryan has promised not to make the same mistake.

One final point. A government shutdown in December might make the Fed less likely to raise interest rates that month given the surrounding turmoil.

Andrew H. Friedman is the principal of The Washington Update LLC and a former senior partner in a Washington, D.C. law firm. He speaks regularly on legislative and regulatory developments and trends affecting investment, insurance, and retirement products. He may be reached at www.TheWashingtonUpdate.com.

Neither the author of this paper, nor any law firm with which the author may be associated, is providing legal or tax advice as to the matters discussed herein. The discussion herein is general in nature and is provided for informational purposes only. There is no guarantee as to its accuracy or completeness. It is not intended as legal or tax advice and individuals may not rely upon it (including for purposes of avoiding tax penalties imposed by the IRS or state and local tax authorities). Individuals should consult their own legal and tax counsel as to matters discussed herein and before entering into any estate planning, trust, investment, retirement, or insurance arrangement.

Copyright Andrew H. Friedman 2015. Reprinted by permission. All rights reserved.