Now that the balance of power in D.C. and Des Moines has shifted somewhat to red, whither tax policy?
At the federal level, a lame-duck Congress has a huge tax agenda, including:
- The fate of the estate tax, which is scheduled to revive worse than ever on January 1.
- The fate of the Bush-era tax cuts. Absent Congressional action, the top effective tax rate will go from 39.6% on January 1, from 35%. The capital gain rate will rise from 15% to 20%, and the rate on dividends will increase astronomically, from 15% to 39.6%
- The AMT patch. If Congress doesn’t act, the AMT exemption for joint filers will fall from the 2009 amount of $70,950 to $45,000, increasing taxes for this year by thousands of dollars for millions of taxpayers.
- The extenders. Dozens of tax breaks, from the research credit to biofuel subsidies, have expired. They have been extended a year at a time to disguise their true multi-year cost. Extension has been pretty much automatic, until now.
It’s unlikely that the lame ducks will accomplish much. I expect an AMT patch to pass (though you should bet the other way if they offer points). I would bet against the extenders getting past the lame ducks, though it could happen. Action on the Bush tax cuts and the estate tax seems unlikely to me. It would require a triumphal GOP to work out a deal with a President whose response to disagreement so far has been to repeat himself slower and louder. The same dynamics bode poorly for the next Congress when it meets in January.
What about Iowa?
The new Republican Governor has a House majority, but the Democrats still control the Iowa Senate. Senate Majority Leader Gronstal, last seen trying to raise individual rates by repealing federal tax deductibility, seems unlikely to go along with incoming Governor Branstad’s plan to halve the 12% corporate tax rate. The best bet would be for no movement in tax policy, except for a continued reliance on futile economic development tax credits that has been getting the state nowhere for many years now.
But maybe, just maybe, gridlock could be averted. At the federal level, a chastened Administration could work out a tax reform plan with the enemy opposition. In Iowa, the Quick and Dirty Tax Reform Plan offers the two parties common ground of simplification and loophole-closing. Well, we can dream, anyway.
More tea-leaf reading from TaxVox. Linda Beale has her folk-marxist take. Peter Pappas does a little end-zone dance in Florida.
