Tuesday, August 31, 2010

Odds Brightening For Tax Cut Extension

While America waits for Congress to return from their summer break, experts are weighing in on whether the Bush tax cuts will be extended or not. As the January 1st deadline approaches, the lack of information about tax rates for 2011 is frustrating many taxpayers.

Forbes reports:

    On Jan. 1, 2011 the top income tax rate on ordinary income and dividends will go back to 39.6%, the top tax rate on capital gains will revert to 20%, and the top tax rate on estates will go back to 55%. Some in Congress want to extend the tax cuts for everyone, some want to extend them but not for the "rich," and others want to hold the dividend tax rate to 20%. These decisions make a huge difference to American business. But rather than putting it up for a vote, Congress is playing political games.

    Our best guess is that, ultimately, all the current tax rates on regular income, dividends and capital gains get extended for another year. When this happens remains a major mystery, and no matter what we say or think, uncertainty about all of this remains extremely high.

    Ideally, it would happen before the election this year. But this would require President Barack Obama and the Democrats to turn dramatically, just when the public is paying more attention to politics. It would look opportunistic, demoralize some liberal voters and undermine the Democratic position that tax rates on the rich don't matter that much to the economy.

    How about in a lame duck session? If the consensus is right and Republicans take the House and make large gains in the Senate, it would give Democrats a chance to say they are listening to the voters. But in a lame duck session, Speaker Nancy Pelosi would still rule the House with little to no incentive to do the heavy lifting needed to pass a bill.

Continue reading at Forbes.com…