Napier & Company, LCC

The Winners and Losers of the Fail of the Deficit Reduction Committee

While the U.S. congressional draws public attention for failing to craft a deficit-reduction deal, its inaction produced a number of winners and losers in government and the private sector. Here are some of them:

WINNERS

• Medicare, Medicaid and Social Security recipients who might have seen a reduction in healthcare and pension benefits. The panel was considering a number of measures to try to reduce soaring healthcare costs and reduce the government's financial burden of providing benefits to an aging population.

• The oil and gas industry. It survived efforts by Democrats to curtail industry tax breaks amid soaring profits. Congress members were said to have considered changing an inventory accounting method in a way that would have stripped retailers and energy firms of their ability to trim taxes.

• The pharmaceutical industry. It escaped Democrats' efforts to reduce prescription drug costs for Medicare. One idea that gained some traction would have reimbursed drug companies at the lower Medicaid price for those beneficiaries who are eligible for both the Medicare health program for the elderly and Medicaid health program for the poor.

• Hedge fund managers. The panel's failure to get a deal put to rest an effort to plug some tax loopholes. Hedge fund and private equity managers pay a 15 percent capital gains rate on a large chunk of their annual earnings, known as "carried interest," instead the 35 percent ordinary income tax rate.

• Owners of second homes, yachts and corporate jets. Panel members were considering ending the mortgage interest rate deduction for second homes and yachts. They also were looking at closing a tax break for corporate jets.

LOSERS

• The defense industry. Congress’s failure triggers $1.2 trillion in automatic spending cuts to start in January 2013. Half of those cuts will fall on military spending, but lawmakers are already maneuvering to try to stop them or at least reduce the amount.

• Medicare providers. Although cuts to Medicare are limited under the law that sets in motion the automatic spending cuts, they all fall on hospitals and other healthcare providers. Still, many in the health industry feel cuts to healthcare providers could have been even deeper if Congress had succeeded.

• Federal food safety, border security, environmental protection and financial regulatory agencies along with a number of other domestic programs that will see their budgets slashed under the automatic spending cuts.

• The poor who rely on food stamps, housing, education and heating assistance. These programs could be hit hard by the across-the-board spending cuts. (1)

(1)Newsstand, R. (n.d.). Retrieved from http://checkpoint.riag.com/HELP/checkpoint/news1.htm