Jay Heflin at The Hill continues to confirm his status as the leading reporter on the tax issues in Congress with another excellent piece analyzing the present status. His analysis largely agrees with my post of yesterday. He believes the most likely scenario is the “punt”. Senator McConnell and the other Republicans in the Senate compromise with the President and extend the continuation of the income tax cuts for all taxpayers for one, or more likely, two years. They would then battle it out again a later day.
Jay may be right but after reading his article I continue to believe we have even odds between their passing the President’s plan (no continued income tax cuts for high earners) versus doing nothing. I believe the President will be strong on this issue and not compromise. Jay points out Senate Majority Leader Reid will bring the President’s proposal to the Senate floor for a vote by the end of this month. President Obama will then likely look Senator McConnell in the eye and say, “take it or leave it”. A rational person would then gulp and take it: otherwise the Democratic opponents of incumbent Republican Senators can honestly say: “You voted against a tax cut for 98 percent (or whatever the percentage is) of the people.” Reid may very well cobble together enough Democratic and Republican votes to get to the magic 60 number. There should be 60 rational Senators.
On the other hand, not very many Republican Senators running for re-election are in a close race. In addition, the Senators (both parties) have shown themselves to not be very rational, for example by their allowing the estate tax (and the full step up in income tax basis) to lapse in 2010. All or at least enough of the Republicans may stand firm against continuing the tax cuts for high earners. The President would likely stand firm. We would have an impasse. Nothing would happen before election.
Next, the Senate may then take up the issue after the election. The President would stand firm. (Probably, Pres. Obama in an interview with Good Morning America just a few minutes ago on this issue stopped short of threatening a veto if Congress passes the “punt”.) The Republicans may then cave because many more of them will be up for re-election in 2012 and would not want a nay vote to come back and haunt them. However, the irrationality may continue.
Please note, I assume the $3,500,000 estate tax exemption, etc. would be included in any legislation that would pass. I may be wrong. Stranger things have happened. They have been so irrational. However, Senator Reid is likely to include the estate tax fix in whatever does pass.
My conclusion, even odds continue between a $3,500,00 exemption and a $1,000,000 exemption; even odds between the President prevailing and their doing nothing.
By Kevin Staker
The Hill article is located at http://thehill.com/blogs/on-the-money/domestic-taxes/117785-division-over-taxes-leaves-obama-and-dems-with-options