Washington INsider

Washington INsiderblog

Mark Schoeff Jr. looks at what's really happening on Capitol Hill - and the upshot for advisers.

Fiscal-cliff turns into ping-pong match

House, Senate must move beyond bills only each can pass

Dec 18, 2012 @ 2:59 pm

By Mark Schoeff Jr.

House Speaker John Boehner, R-Ohio, announced so-called Plan B legislation on Tuesday to allow Bush tax cuts to expire for those making more than $1 million.
+ Zoom
House Speaker John Boehner, R-Ohio, announced so-called Plan B legislation on Tuesday to allow Bush tax cuts to expire for those making more than $1 million.

Perhaps it's time to change the metaphor for negotiations in Washington to avert the steep tax increases and spending cuts that are scheduled to go into effect at the beginning of the year. The fiscal cliff has given way to a ping-pong match.

The volleys will occur between the House and Senate, as each chamber tries to settle on one palatable measure. While the ball goes back and forth over the net, it's becoming clear how investment taxes may fare.

The White House and the Democratic-majority Senate have been urging the House to pass a bill that the Senate approved over the summer to extend all the Bush tax cuts for households making less than $250,000 annually. That bill is not going anywhere in the Republican-controlled House.

Instead, what is likely to happen is that the House will amend the Senate bill with the so-called Plan B legislation that House Speaker John Boehner announced on Tuesday. Mr. Boehner's proposal would extend the Bush tax cuts for everyone making less than $1 million. By the time it hits the House floor later this week, it may also include a patch to the alternative minimum tax and a provision on the estate tax.

The Senate bill does not include an estate tax provision because several Democratic senators are leery of raising the estate tax above its current 35% rate and $5.12 million exemption – a level where House Republicans will likely want to keep it as well.

What the Senate bill does contain are an AMT patch and provisions that would raise the capital gains and dividends rates to 20% each, up from the current 15%. Senate Democrats split from President Barack Obama and decided to keep the two rates linked. In his budget proposal earlier this year, Mr. Obama taxed dividends at ordinary income levels.

Republicans certainly are not going to push for higher investment tax rates than what the Senate Democrats are backing. It's possible now to make an educated guess now on where they end up – not higher than 20% for capital gains and dividends and around where they are now for the estate tax. The parties are not that far apart on investment-taxes.

Another issue that is gaining clarity is that individual tax rates are almost certainly going to increase for the wealthy. In his latest fiscal cliff offer, Mr. Obama proposed letting the Bush rates snap back for households making more than $400,000. Late last week, Mr. Boehner made his proposal for a tax increase for those making more than $1 million.

Of course, the journey to a final bill will be tortuous and involve plenty of political posturing and threats. On Tuesday, Senate Democrats and the White House said that Mr. Boehner's Plan B would be dead on arrival in the Senate.

That gives the Senate an opportunity to amend it and hit it back over the net to the House. The House can consider the revised version and hit it back to the Senate. Look for cliffhanger votes along the way, much as we saw during congressional deliberation over the Troubled Asset Relief Program during the financial crisis.

And so on we'll go until an agreement is reached or the chambers give up. If it's the latter, the ball will have fallen off the table rather than off the cliff.


What do you think?

View comments

Recommended for you

Featured video


State Street's Brie Williams: How financial advisers can protect clients with cognitive decline

Advisers need to take note of changes in their clients’ behaviors as they age, and help protect them from unnecessary financial fraud or loss, according to Brie Williams, head of practice management at State Street Global Advisors.

Latest news & opinion

Morgan Stanley says recruiting and attrition have slowed down

If wirehouses can successfully reduce their reliance on signing bonuses to recruit brokers, they could increase profits.

Managed accounts look attractive to 401(k) advisers, but how do you measure performance?

The customization that makes them a good investment option presents a benchmarking challenge.

National Holdings' acquisition of broker-dealer WFG Investments and its 200 advisers called off

Under an alternative plan, WFG's advisers will be relocated to three broker-dealers, including one owned by National Holdings.

Can Buckley run the house that Bogle built?

Maintaining a lead in a low-margin business brings unprecedented challenges for Vanguard's new CEO.

Wells Fargo sustains more adviser losses following banking scandal

One hundred and thirty advisers left in the second quarter, marking the firm's third consecutive quarter of reductions.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print