California Estate Planning Blog by Kevin Staker

December 12, 2012

Commentary: Avoiding the “Fiscal Cliff”: What Should Happen and What Will Happen (The Estate Tax is Small Potatoes)

May I throw in my opinion on what should happen in the “Fiscal Cliff” negotiations and what will likely happen. I will ignore the estate tax (we will get at least a $3.5 million exemption but will not be decided until some time in 2013 but will be retroactive.)

Here is what should happen: the Republicans should keep it simple. They should see what they can get for simply allowing the Bush tax cuts to expire and doing the AMT fix for 2012. In other words, they should agree to the terms of the Middle Class Tax Cut Act (“MCTC Act”) already passed by the Senate, and see what they can get out of President Obama in entitlement cuts, such as raise the Medicare age 10 years from now.

The reason is they are going to lose on the wealthy tax cuts. All Obama has to do is wait them out until January. If we go “over the Cliff, taxes will go up on everyone. Constituents will rightly howl it is the fault of the Republicans in Congress (in particular the House). The Republicans will quickly cave in and get nothing for it. In fact, I believe the House at the last minute on New Years Eve will likely pass the MCTC Act. The Republicans should try and get something for the inevitable.

Here is what will happen: The problem we have now is Obama is asking for more than the end of the lower tax rates for the wealthy. He is asking for $1.4 trillion in tax increases. Now much of this is from other tax give a ways that will automatically expire on January 1st, for example the capital gains tax rate will increase from 15 percent to 20 percent.. However, apparently in the present negotiations he is also asking for an extension of the payroll tax decrease and long term unemployment benefits. (See excellent analysis of Andrew Taylor at the Huffington Post,  These are two items that hardly any on in Congress has been pushing for. They all know we cannot afford these. They would add to the deficit and have to be paid back by our grandchildren. These are items his leftist advisers are pushing for. Why I do not know. The election is past. We do not need such a stimulus to the economy. If the Republicans have any integrity they will say no way and see what they can get in return for agreeing on the higher tax rates.

If they cannot get any entitlement concessions from the President, they should simply capitulate and pass the MCTC Act before the end of the year. They should then fight it out next year with the President on entitlement reform, with the estate tax fix being part of their settlement.  This is what I believe will happen.

We shall see.

Kevin Staker
Estate Tax News Blog

P.S.  Looks like Fareed Zakaria at CNN agrees with the above.  See


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