It's finally official. The Republicans have taken over the House of Representatives and clawed away much of the Democrats' edge in the Senate. As I gaze into my crystal ball, here are my latest thoughts on what we can expect from the new Congress. But don’t take this to the bank… remember I was the guy that said the Congress would never allow the estate tax to lapse in 2010. Boy was I wrong. Here are my thoughts:
• Most tax accountants have been skeptical that Congress would get their act together and extend the 2001 and 2003 Bush tax cuts (even just for those earning under $250,000) in the lame duck session of Congress convening on November 13. But White House Press Secretary Robert Gibbs announced just today that the administration is open to extending the cuts for all. http://www.cnbc.com/id/40007621
• Word on the street suggests we may see a one-year extension for everyone, then fight it all out again with the new Congress in 2011. However, the Republicans may wait until the new Congress convenes in January to address the issue. In that case, clients can expect to see less take-home pay as the IRS adjusts withholding tables to reflect the new, higher rates.
• If Congress reaches the consensus necessary to resolve the Bush tax cuts question, they'll also manage to "patch" the AMT to avoid soaking millions of unsuspecting Americans. We have been doing several pre tax appointments and so far, if they do not do the patch, we only had one client that was not paying the additional Alternative Minimum Tax. It could get ugly.
• The new Republican House makes it unlikely that we'll see the estate tax roar back with a vengeance like it's scheduled to on January 1. But Congress isn't going to come up with a compromise imposing it retroactively for 2010, either. At this point, the smart money is betting on a compromise with a unified credit in the neighborhood of $3.5-5.0 million and rate of 45%.
• Republican leaders insist they plan to repeal the Legislation that Washington refers to as Healthcare Reform. But even L. Ron Hubbard can't imagine an alternate universe that gives them the votes they need to overcome a Senate Democratic filibuster or presidential veto. However, prospects are good that they can cherry-pick some of their least-favorite provisions — specifically; the requirement that all business file 1099s for all purchases over $600.
Some clients are breathing sighs of relief that the Republican victory will keep taxes low. But that view ignores the reality that deficits are still going up — and taxes will ultimately have to follow. This week's elections may have postponed that day of reckoning, but they haven't eliminated it. Don’t bury your heads in the sand. Recognize this economic inevitability and realize that continued gridlock means uncertainty — and even mere uncertainty not only makes it hard to tax plan but impacts the economy.
