A humbled (not really) president and an empowered (really) future speaker of the house held separate press conferences on Wednesday in the aftermath of Tuesday’s taxpayer uprising otherwise known as the mid-term elections. The question on everyone’s mind was would there be a new era of compromise coming to Washington in the weeks ahead. You didn’t need to read between the lines to the get the answer, “not anytime soon.” The President was of the opinion that the American voters just didn’t get it. Meanwhile, the leaders of the Republican Party said pretty much the same thing about the President. It looks to me like we’re in for a two-year long food fight.
Which brings us to the continuing saga of the expiring Bush tax cuts. Congress needs to deal with the issue in the lame duck session that begins November 15th-- and they need to get something they can agree on quickly. On the table is the issue of income, capital gains, dividend, and estate tax rates. If the lame duck session ends without passage of some form of extension, the cuts will expire, returning ALL taxpayers to the tax rates of the Clinton administration.
Lost in the euphoria of a sweeping Republican victory is the sobering fact that the folks voted out of office will still be there when Congress resumes in a little over a week. It will be up to the old guard to decide the fate of the sun-setting tax cuts, while the newbies wait in the wings. Or, they could do nothing and let the next Congress take a whack at it. What direction will the Congress take? Speaker (for now) Nancy Pelosi (D-CA) has repeatedly supported extending the middle-class tax cuts first passed in 2001 and 2003, but increasing the 33% and 35% brackets to 36% and 39.6%. This increase would affect single persons with incomes over $200,000 and married couples with incomes over $250,000. Dividends would be taxed as ordinary income and capital gains tax rates would increase from 15% to 20%. And there is still no compromise on estate taxes.
It’s a little different In the Senate. The new Senators elected in West Virginia, Illinois and Delaware will immediately replace the existing Senators due to the rules on vacancies. As a result, the votes needed to pass legislation in the Senate could change. Under Senate rules, 60 votes are required to pass permanent tax cuts.
So where does this leave us? We still have a Senate controlled by the Democrats and led by Majority Leader Reid (D-NV). We have elected a Republican controlled House--but that doesn’t start until next year. So, for now--and now is important--you’re looking at a Pelosi led, Democrat controlled House. Republicans can dig in and demand extension of the tax cuts for all taxpayers, knowing that they will be in a better position to direct legislation next year.
In its weekly Washington Report, Crescendo Interactive reported that in an interview on October 22nd, Vice President Joe Biden indicated that the Administration may be open to negotiation with Congress during the lame duck session. The White House continues to favor a permanent extension of tax cuts for middle-income individuals. However, several Democratic Senators have suggested that a compromise might include an extension of all of the current tax rates for 2011. Vice President Biden noted, "We're open to speak to the Republicans, if they really mean it, if they are talking about deficit reduction, if they're willing to move."
It seems that both sides agree on one thing. If the tax cuts are allowed to expire, it will be devastating to an economy that is struggling to climb out of a recession and could have a chilling effect on jobs creation. So who will be the first to blink? Let the food fight begin.