Blogs Derek's Tax Blog Estate Tax as Campaign Issue
It’s official: Taxes, including the estate tax, are going to be a huge campaign issue this fall.
Since George Steinbrenner's death, I have been trying to pull some common themes from the news on the estate tax. His death definitely attracted some national attention to the estate tax issue. The closest thing to a consensus I could sense was that the Boss got away with one. I take this reaction as a negative for the prospect of increasing the exemption next year above $1 million. The specific attention to the estate tax seemed to morph into a more general discussion of taxes and deficits.
And then something interesting happened. All of the Bush tax cuts suddenly seemed to up for discussion, not just the ones for the wealthy. As I am sure you know by now, a whole host of tax cuts from the 2001 bill are set to expire at the end of this year, including ones that we have all assumed would be a lock to get extended like the 15% tax bracket. The majority of these are still likely to be extended at some point. What I find interesting was that there was even a question that they wouldn't be extended.
It actually feels a bit like 2009. As you may recall, in 2009 the dominant opinion was that the powers in Washington D.C. would never let the 2010 estate tax repeal year happen. It was assumed that the 2009 tax would be extended. Most thought it would be extended permanently. Of course here we are now with no estate tax and $1 million exemption and top rate of 55% scheduled to reappear next year.
Summer and the Election Season
As we near the end of summer we are beginning to see the falls battle lines drawn in congressional campaigns. The President's party always loses seats in the midterm elections. It happened with both Clinton and Bush. There is no reason to expect it won’t also happen this year. In fact some are predicting that the Democrats will lose control of the House. If that happens, it will only increase gridlock and dim the prospect of a quick resolution to the tax issues. In fact, from a strategic perspective it may be in the Democrats long term best interests to allow all of the Bush tax cuts to expire.
The biggest issue for congress post-election is likely to be the deficits. All agree that the deficits need to be dealt with. There is a question of timing: before or after we emerge from the current economic crisis. There is also a question of how reducing the deficit is going to be paid for. There are only two places it can come from: spending cuts or tax increases.
Each party will take their traditional roles; however, for the Democrats allowing the Bush tax cuts to expire gives them a strategic advantage. It is a little like getting to go first in chess. They will claim victory by restoring selective tax cuts for the middle class while blaming Bush and the Republicans for the tax increases on everyone else. For their part, the Republicans will have to compromise somewhere in order to get their priorities through.