Washington Matters
Why Obama May Back Down
On Tax Hikes for the Rich
Congress may do what it does best -- postpone a tough decision until next year.
By Joan Pryde, Senior Tax Editor, the Kiplinger letters
February 8, 2010
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What a difference a year makes. Twelve months ago, the conventional wisdom was that President Obama and the Democratic controlled Congress would have their way with tax policy, ramming through tax increases on upper income folks and businesses. Now, with Democrats having lost their supermajority in the Senate, tax hikes seem to be squarely on the back burner. Instead, Job No. 1 is boosting the economy. That means tax cuts, and lots of them.
Democratic leaders are so worried about the outcome of the midterm elections that they’re determined to quickly pass a new package of economic stimulus measures, the centerpiece of which is likely to be a credit for hiring the unemployed -- a break that just a few months ago was nixed because of doubts that it would work as intended and fears that it could too easily be abused. And that’s not all: Among other things, small businesses can expect Congress to revive two popular breaks for one more year: 50% bonus first-year depreciation and the higher $250,000 limit on so-called Sec. 179 expensing of assets.
Originally, the main tax issue of 2010 was supposed to be what Congress would do about the Bush tax cuts -- the 35% top marginal tax rate, the special 15% top rate on long-term capital gains and dividends, marriage penalty relief, etc. -- which expire at the end of this year. Back in the old days, when the Democrats had 60 votes in the Senate, it was presumed Congress would make quick work of Obama’s proposal to let the Bush tax cuts expire for singles with about $196,000 in taxable income or higher and around $231,000 for married couples. Now, even members of his own party -- particularly those in tough reelection fights -- are begging Obama to back down. For the moment, he’s hanging tough, having revived the proposal as part of his fiscal 2011 budget plan.
From a political perspective, it’s not hard to see why Obama would want to stick with his idea for the Bush tax cuts, because the flip side is that they would be made permanent for the middle class. Republicans have pledged to block Obama’s plan because they argue that it would raise taxes on a lot of small business owners who aren’t among the wealthy taxpayers Obama says he is targeting. But if Republicans dare to stymie the proposal, they could be accused of killing tax cuts for middle income folks.
Given the Democrats’ fears about November, that kind of brinksmanship probably isn’t in the cards. Because Congress is so good at punting on the really tough issues, the most likely outcome for this year is a short-term extension of the Bush tax cuts for everyone, rich and poor, so both sides can live to fight another day. That day will have to come before too long, though, if Congress and the White House are serious about making a dent in the federal deficit
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Reader Comments (5)
Posted by: V. F. at 02/09/2010 05:11:13 PM
I am sick and tired of the horse-trading that goes on in our Congress. For years we have been told that we will be protected from the Alternative Minimum Income Tax --- that it is not affecting those it was originally meant for. But no, AMT exemption amount patches and more patches, year after year, some at the last minute in December, and more micromanaging of our lives--that is what we get....It's time to get rid of it! In December of last year, the Senate passed a health care insurance bill that would use the IRS and the Tax Code as enforcers of its legislation. I read an explanation of the proposed legislation at www.cch.com and Page 6 of their explanation includes a sentence, which says: The income threshold amounts for seniors on Medicare Part B will be frozen for 10 years from 2010 to 2019. (Some seniors pay much higher premiums for Medicare Part B based on the income threshold amounts per the Medicare Modernization Act which was passed a few years agoexplanation at SSA.gov.) In my opinion, this newly proposed Senate health care insurance legislation is attempting to sneak this new rule freezing the threshold levels from 2010 through 2019 through without anyone spotting it or its ramifications. Some seniors already have to jump through hoops via the Medicare Modernization Act. The newly passed Senate bill says it will freeze those income threshold levels for 10 years which, of course, means that as seniors income rises, some seniors are more likely than not to exceed one or more income threshold levels resulting in much higher Medicare Part B premiums from 2010 through 2019. How about seniors who are now making withdrawals from their traditional IRAs or converting them to Roths? The income must be included in Modified Adjusted Gross Income (per the Tax Code) and once again some seniors will get hit with these Medicare Part B premium increases which are really taxes in disguise. The proposed health care insurance legislation should be scrapped! Congress should stop using the Internal Revenue Service via the Tax Code to pick winners and losers for health care insurance legislation. The rest of us should also learn that saving for retirement via a traditional IRA may cost us dearly (in the future when we are over 65) in the form of disguised taxes resulting in "Medicare Part B premium surcharges" if this legislation should ever become law! In general, Congress needs to stop using the Tax Code to hand out welfare to some and penalties to others. The party in power thinks its their right to micromanage our lives to what suits them and not us -- we the people. It has to stop!!!
Posted by: Bob Rinko at 02/10/2010 08:08:17 AM
Dude thats like totally insane. He's finally starting to realize the ones who REALY make the decisions have been bought and paid for!
Posted by: Keith at 02/10/2010 02:53:23 PM
He better not expect to get re-elected then. Same goes for all his cronies in office as well. Expect a rude awakening all you encumbents because you ARE NOT GETTING back into office to steal from us anymore.
Posted by: u2canfail at 02/10/2010 04:34:42 PM
Congress worried? About what, about doing nothing? About taking $$ from interests against voters? Banking Legislation? Worry guys, just worry. Both parties are so "on the take" they should all resign. I hate tea, but Congress, "disgust" is not even close to my thoughts. The rich pay less than I do, and they seem to get more each year. Tax reform now. NO DEDUCTIONS an income rated scale. Charity, investment, oil, babies, NONE
Posted by: Cathy at 02/13/2010 12:58:04 PM
I wouldn't count on all those tax cuts. Remember during the campaign Obama stated over and over if a family had $250,000 or less in income, there would be no tax hikes. Well, guess what! The liar-in-chief is striking again. Now he says he is agnostic about that. When he appoints this group to lower the deficit, everything is on the table. Here we are with 9.7% unemployment and millions of Americans jobless, and he wants to raise taxes. That will insure the unemployment going back to over 10%. Obama and the Democrats have no economic sense whatever. This is income redistribution alright. At least 50% of the people pay no taxes at all, and the other 50% supports everything, and he wants us to pay more. This is economic suicide. I am a Tea Party supporter and will work to see that the Democrats are sent packing in November. See how Obama likes working with a Republican majority.