At their party conventions, Democrats put the wealthy squarely in the cross hairs for tax hikes, while Republicans promoted tax cuts for all income levels.
Though the conclaves highlighted the top of their respective tickets — President Barack Obama and former Massachusetts Gov. Mitt Romney — races lower on the ballot will determine how much high earners end up paying.
“We're a long way from saying high-net-worth clients will pay more under Obama than Romney,” said Tim Steffen, a senior vice president and director of financial planning at Robert W. Baird & Co. “What's really going to drive tax policy is what happens at the congressional level.”
Although neither Mr. Obama nor Mr. Romney offered specifics during the conventions, in Charlotte, N.C., and Tampa, Fla., the political atmosphere for House and Senate races will be determined in part by the brighter lines they drew.
The Republicans approved a platform that calls for extending all the Bush-era tax cuts and reducing marginal rates by an additional 20% “across the board in a revenue-neutral manner.” It also supports eliminating the estate and alternative minimum taxes, and ending capital gains and dividend taxes “for lower- and middle-income taxpayers.”
In his acceptance speech last Thursday, Mr. Obama targeted high earners for tax increases.
“I want to reform the tax code so that it's simple, fair and asks the wealthiest households to pay higher taxes on incomes over $250,000 — the same rate we had when Bill Clinton was president, the same rate when our economy created nearly 23 million new jobs, the biggest surplus in history — and a whole lot of millionaires to boot,” he said.
In order to follow through on such a policy, Mr. Obama would need Democrats to make electoral gains in Congress, as well as defections from across the aisle.
The GOP controls the House, while the Senate has a 53-47 Democratic majority. There are 23 Democratic seats up for election and 10 Republican seats.
Neither party is likely to achieve the 60-member majority necessary to withstand a filibuster.
“Obama's re-election does not guarantee that taxes will increase for taxpayers targeted in his campaign, especially because Republicans are likely to retain the House and may retake the Senate,” according to a recent report from consulting firm Grant Thornton LLP.
“Romney's election would not guarantee the absence of tax increases. Even if Republicans retain the House and take the Senate, they are very unlikely to achieve the 60-vote majority,” the report said.
Regardless of Capitol Hill's makeup after Nov. 6, Mr. Obama has more leverage than Mr. Romney. Taxes on the wealthy will rise Jan. 1 unless the Republicans can prevent the expiration of the Bush tax cuts during the lame-duck session — before he could take office.
The conventions provided little insight for advisers struggling to steer their clients through the tax fog.
“They did what they were supposed to do, which is motivate, inspire, uplift their base and sway over independents who haven't made up their minds yet,” said Scott Brewster, president of Brewster Financial Planning LLC.
Robert Schmansky, founder of Clear Financial Advisors LLC, said he has a similar impression.
“Even with their platforms, it's hard to guess what will happen,” he said.
One of the more rousing moments of either convention, however, provided a glimpse into how the debate over Medicare reform might play out.
Formally nominating Mr. Obama for a second term, former President Bill Clinton argued that Democrats would preserve the program but Republicans, led by their vice presidential nominee, Wisconsin Rep. Paul Ryan, would threaten its viability.
Mr. Ryan maintains that his reform plan would save a Medicare program that will soon be overwhelmed by demand as baby boomers continue to retire in droves.
The Medicare issue will be prominent not only in the presidential race but also in the fiscal cliff negotiations after the elections. An important argument will be over the 3.8% tax on investment income that will go into effect next year to help finance the health care reform law.
“The more [Medicare] solvency becomes a key political issue, the harder it's going to be to defer or repeal the new Medicare tax,” said Mel Schwarz, a partner in Grant Thornton's national tax office.
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