The lame-duck session of Congress resumes today, with four big sets of tax issues at stake:
- Will they pass a 2010 “AMT patch,” preventing a tax increase of thousands of dollars for 20 million taxpayers for this year?
- Will they extend any of the Bush-era tax cuts?
- Will they pass an “extenders” bill to pass the usual ugly dozens of provisions that routinely are enacted “temporarily” for a year or two at a time to conceal their full cost? These include provisions like biodiesel and ethanol subsidies and the R&D credit.
- Will they do anything to keep the estate tax from roaring back to life next year with a 55% top rate and a $1 million exemption? The current rate is 0%, and the 2009 rate was 45% with a $3.5 million exemption.
The was no progress in any of this before the Thanksgiving break, and it is unclear whether anything can happen in what’s left of this Congress. Out of the four items on this to-do list, the AMT patch is the only one that I feel confident that Congress will pass (though less so every day). The usual army of lobbyists may get an extender bill through, but that’s no sure thing.
The Bush-era tax cuts are really up to the President, and it’s not at all clear he would sign a tax cut for the top two brackets. It seems unlikely that Congress will pass a tax bill that doesn’t extend all of the Bush-era tax cuts. He’s supposed to meet with Congressional “leaders” next week to work out a plan. We’ll see. The Intrade betting market on 2011 rates hasn’t budged, indicating that nobody really knows what will happen.
I have no confidence that this Congress will address the estate tax.
It’s not that a possible compromise is inconceivable. Economist Diana Furchtgott-Roth lays out a plan in today’s Tax Notes online ($link):
The simplest and obvious solution would be to extend the 2010 tax rates on income and capital for the next two years, address the AMT, and reinstate the estate tax at 2009 levels. According to revenue estimates published by Treasury in July, these measures would cost $475 billion.
Those outside Washington know there is room in the budget for spending cuts — both in discretionary and in entitlement programs — to pay for extending taxes. For instance, there’s the $13 billion for a high-speed rail that won’t even cover a small fraction of the system’s cost — time for it to go.