Capitol Hill Prepares for Tax Votes

As expected, President Obama delivered remarks at the White House on Monday in which he called for Congress to extend current rates only for individuals earning less than $200,000 a year ($250,000 for married couples). The President did not mention his position on estate taxes, which would feature a return to 2009 levels with a 45% rate and a $3.5 million exemption.

On income, capital gains and dividend taxes, there was some evidence of increased resolve among Democrats on the Hill, as Senator Charles Schumer (D-NY), a proponent of a $1 million threshold, indicated he stood “in total solidarity with the president”. However, many Democrats in tough election contests continue to indicate a preference for a higher threshold and express an openness to a temporary extension for all income levels.

Administration officials tried to downplay the threshold debate among Democrats, “They said whether to use $250,000 or $1 million as a cutoff was more a matter of strategy than a ‘religious’ debate.” According to the Center on Budget and Policy Priorities, a liberal think tank, the revenue difference resulting from the different threshold options is $366 billion over ten years. Meanwhile, Treasury Secretary Tim Geithner and Obama campaign advisor David Axelrod visited congressional Democrats to make the case for unity on the president’s tax vision and bring the party’s messaging closer in line.

Republicans were quick to respond to the renewed focus on taxes, calling expiration of part of the 2010 Tax Act a threat to a struggling economy. GOP Presidential Nominee Mitt Romney labeled the President’s proposal a “massive tax increase” for small businesses.

House Republicans continue to prepare for a July vote on a one-year extension of the 2010 Tax Act, which is likely to include preservation of the 35% rate and $5.12 million indexed exemption. Yesterday Senator Orrin Hatch (R-UT) has proposed an amendment to the Small Business Jobs and Tax Relief Act (S 2237) to extend current rates for all taxpayers for one year. A summary of the amendment provided by the Senator’s office indicates it would “extend current tax policy through the end of 2013”, including “death tax relief”. Our team is currently analyzing the measure, although the amendment is not likely to be adopted at this time.