The Tax Cuts Extension Package: Will Boehner Pay the Ultimate Price?
The Weekly Wrap
"THE WEEKLY WRAP" with Diane W. Collins
December 12, 2010
(Note: No video this week due to illness. Below you'll find the script for this week.)
Welcome to The Weekly Wrap. I'm Diane Collins. And what a week it was. All of Washington seems to be talking about "scenarios" when it comes to the "The Tax Cuts Extension Package," but no one seems to be articulating potential consequences. The "christmas tree with ornaments" as many have referred to the ever growing package of tax cut extensions, unemployment benefits, business incentives, and estate tax compromises adds approximately $1T to the deficit at a time when Americans are screaming, "cut taxes and reduce spending." It makes strange bed fellows (albeit for polar opposite reasons) of conservatives and liberals whose eyes roll to the back of their heads over all that is included. And, this is before the "Peolosi effect" which we'll begin to see on Monday when the House and Senate resume.
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The Weekly Wrap: December 5th The Lame Duck Congress: Session II "What Do You Win, When You Win?" |
| CORRECTION: Reference to the Federal 2011 Fiscal Budget as "2010" was in error. We apologize for any confusion this may have caused. |
Will the tax cuts extension package pass? Probably... But, if it does it signals to the American people that the Republican leadership is paying them lip service. Moderate Republicans and Democrats are all saying we have to pass this monstrosity or "the world will come to an end" Sound familiar? Sort of like Stimulus I? We thought so too.
What if we reject this package and wait? The consequences of waiting until the 112th Congress to address the tax extensions are already a reality for income taxes. Payroll services are setting deductions at levels that reflect the expiration of the Bush tax cuts. Why? Congress hasn't acted. It's almost December 31st. So, people are going to see their paychecks decline in January anyway. Businesses are going to experience the expense of changing deductions twice, regardless.
What about unemployment benefits? If we wait some people will get hurt. But, in January we could pass a paid for, short-term extension. The 112th can address private business solutions to the unemployment problem while they cut wasteful spending programs from the budget. But, heads up. There is a Democrat sub-plot to all the congressional theater most are missing with regard to cutting spending. The House passed another "continuing resolution." (If you remember the last one was a very short stop-gap measure that only keeps the government running until December 18th.) The new resolution holds spending levels at the 2010 limit, approximately $45B less than President Obama has requested and extends to the end of fiscal 2011. This is a tactical move the intention of which is to preempt the 112th from reducing government spending. So, we need to defeat this in the Senate during the lame duck session and establish a short-term extension through March. This will give Republicans in the House greater latitude in reducing spending. (John McCain is calling for Senate Republicans to address this.)
Then there's the estate tax, the juggernaut. The deal worked out with the President and carried through in the Reid-McConnell Amendment 4753 reinstates the tax with a $5M deduction, 35% thereafter due in 90days. The House wants this amended. Although no one yet knows to what, the projected amount is $3.5M deduction with 45% thereafter due in 90 days. If we walk away from the "tax package" and deny the far Left their wasteful spending programs, the estate tax resets to the 2001 level of $1M deduction, 55% thereafter due in 90 days. And, you can be fairly certain President Obama will veto any changes Congress tries to make to the estate tax going forward. This will hurt small businesses, farms and ranches which are family owned... rich on paper, but cash poor. It will affect not only those who have not done their estate planning but also those for whom the estate tax reset renders their planning inadequate.. This isn't rocket science. Buy / Sell agreements for partners and life insurance policies to remedy these situations have been around for a long time, but the reset will adjust the amount due to the government perhaps beyond the funding mechanism. Businesses will be sold. Jobs will be lost.
So, now there are two wolves at the door. The first is a tax extension package many are referring to as a "christmas tree" on which Congress is hanging all types of ornaments adding approximately $1T to the deficit. The other is a "continuing resolution" that restricts the 112th in attacking spending. So, the question remains the same, "What do you win, when you win?" Anyway you slice the deficit and reduce spending someone is not going to be happy. Someone will lose. Further, if you increase the deficit without proper explanation to the American people (regarding the short term affect versus the long term benefit) there could be other consequences. And this could fall to John Boehner.
In January, Presumptive Speaker of the House, John Boehner may see the 112th elect someone else if the Conservative ire begins to rage this week. Remember, freshmen congressmen still must vote on leadership in January. Do you really think they're not hearing from their constituents? Not that Boehner is to blame for all of this nor is Sen. McConnell. They cut the best deal they could in the 111th. But, Conservative anger may simply be focused on the area of greatest impact, House leadership. The huge freshman class has just seen their "mandate" trampled... Welcome to Washington? Yeah, I don't think so. Not these guys.
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