Leading up to the election last week, Republican candidates promised serious tax law changes in the next two years. However, since Democrats retained control of the Senate, many are wondering which, if any, of these promises will actually come to fruition.
Although Republicans took over the House of Representatives, they do not have the power to override a presidential veto. In order to pass a serious tax reform package in spite of a veto Republican leaders will need to come up with a 2/3-majority vote in both chambers of Congress. This has many worried that we will see serious government gridlock over the next two years. However, the change in power could finally push legislators to work together, and compromise on legislation that will actually help this country.
Health Care Revisions
Exit polls indicated that many voters were dissatisfied with the President's health bill, and the newly elected Republican leaders plan to listen to the dissatisfaction. Congressman John A. Boehner told reporters “the American people are concerned about the government takeover of health care. I think it’s important for us to lay the groundwork before we begin to repeal this monstrosity.”
Court Led Overhaul
Although Congress has limited options when it comes to overturning the health care reform law, the U.S. courts could take action. Currently there are 21 states that are challenging the law's requirement that all taxpayers have a qualifying health care plan. If the courts overturn part of the legislation, then it will be easy to build up public support for reforming the bill. Additionally, other experts are warning that members of Congress could add complications to the legislation and build up unpopularity of the law, which could be used as leverage to get Obama out of the White House next election. They could argue that the only way to repeal the law would be to elect a new Republican president.
1099 Changes and Manufacturer Taxes
In addition to concerns over the mandate, Republicans also plan to address two specific parts of the reform package: the new employer 1099 requirements, and the manufacture taxes. James P. Gelfand, Director of Health Policy at the United States Chamber of Commerce, has said he doesn't think "we’ll see a repeal of the health care law tomorrow." But that "Congress got the message that we need serious changes.” Gelfand claimed that he expects the new House to attempt to eliminate the provision that would require many employers to contribute to the cost of coverage for employees. Many experts claim that this provision would hurt job creation, as well as the tax on manufacturers of medical devices.
Energy and Climate Legislation
Although energy and climate reform has been a big issue for the President, it is unlikely that any major law changes will pass the new House. Last week, President Obama said he would like to move the country towards cleaner energy by focusing on smaller issues, which likely won't result in major tax law changes. "When it comes to something like energy,” the President asserted, “what we're probably going to have to do is say here are some areas where there's just too much disagreement between Democrats and Republicans. We can't get this done right now. But let's not wait. Let's go ahead and start making some progress on the things that we do agree on."
Bush Tax Cuts
Although next year there will be a Republican majority in the House, Democrats still have enough votes to extend or repeal the Bush tax cuts during the lame duck session. Obama has called for an extension of all the tax cuts, except for those that benefit highest earning taxpayers. Senate Majority Leader Harry Reid said that the Republicans' proposed extension of all tax cuts "won't happen." However, if Congress does follow the President's suggestion then there is no promise that the new Congress won't pass a retroactive extension of the cuts for wealthier taxpayers.
Currently the Alternative Minimum Tax (AMT) is scheduled to affect 25 million families next year unless Congress passes a patch to the law. If Congress does not take action next year then all of these taxpayers will be faced with a huge and unexpected tax increase.
Estate Tax Compromise
Congress must address the estate tax. In 2011, this tax is scheduled to return at a rate of 55% on estates valued at over $1 million. This is a significant increase from the 2009 tax of 45% levied on estates worth more than $3.5 million. Republicans would like to completely get rid of the estate tax, but experts predict that we will see some sort of compromise that could affect estates valued at over $5 million.