I‘ve written several times on this site about the expiration of the 2001 and 2003 Bush tax cuts, and how if they aren't renewed for all taxpayers before the end of the year, we could be seeing an increase in tax rates for everyone across the board. While both parties have been making overtures about getting something done, thus far it has been all talk. It was almost a forgone conclusion that the tax cuts wouldn't be addressed until after the election, and that's exactly what happened. Now that the election has come and gone, and the makeup of congress has shifted, the tax cuts are being addressed again.
Tax Cuts Pushed Off Until At Least December
While Obama had expressed some willingness to compromise on the tax cuts last week to extend them for everyone, when he was blasted by some on the left of his party, he quickly backed off on that idea.
Both parties were to get together to discuss extending the tax cuts on November 18th, but now that has been postponed as well.
A deal to extend soon-to-expire Bush-era tax cuts won’t be completed until December, and some Democrats in Congress said an accord may not be reached this year.
President Barack Obama and congressional leaders postponed until Nov. 30 a White House meeting, previously scheduled for tomorrow, to negotiate whether to extend lower tax rates for all taxpayers or just those with incomes of $250,000 or less. Separately, Democrats, who control the Senate, said they haven’t agreed on a plan.
“I don’t even know what the options are at this moment,” Senator Maria Cantwell, a Democrat from Washington state who serves on the tax-writing Finance Committee, said yesterday.
The delay sets the stage for year-end brinksmanship that would result in higher taxes for all Americans next year if Congress fails to pass legislation that Obama agrees to sign. The tax cuts enacted in 2001 and 2003 are scheduled to expire Dec. 31.
Once again we're going to have to wait and see how things play out. My gut instinct says that they won't be able to come to a compromise this year before the tax cuts expire, and everyone's tax rate will go up on January 1st.
Unless Congress acts, marginal income tax rates will rise across the board, tax credits that benefit families will be slashed, and rates on capital gains and dividends will increase. In addition, a federal tax on estates worth more than $1 million will be resurrected after expiring for 2010.
Clint Stretch, managing principal at the consulting firm Deloitte Tax LLP in Washington, said expiration of all of the Bush tax cuts would add $2,600 annually to the tax burden of a median-income family earning about $70,000 a year.
So if nothing is done to extend the tax cuts this year, will taxpayers be surprised when their paychecks are smaller come January?
What Tax Extension Plans Are Being Floated?
As the can gets kicked down the road we're getting a variety of proposals from members of both parties as far as which of the tax cuts should be extended, and for whom.
- Republicans are advocating for a complete extension of all tax cuts permanently.
- Democrats are advocating for an extension of tax cuts for everyone except for those who make over $200,000-$250,000.
- Senator Mark Warner, a Virginia Democrat, would steer tax cuts that would have flowed to high-income individuals to businesses in the hopes of stimulating investment and hiring.
- Senator Charles Schumer, a New York Democrat, would sustain the Bush tax cuts for all households earning less than $1 million, rather than $250,000.
What we'll see when something is finally done is anybody's guess, but I'm thinking it may be some form of an extension of all tax cuts, but only temporarily. In other words, I think they'll compromise for now and kick the can down the road for another congress to decide.
What do you think that they'll do about the Bush tax cuts? Will they extend them for all, some or will they let it lapse and allow tax rates to go up? Will it happen at the end of the year, or go into next year? Tell us your thoughts in the comments.