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.

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.

0
Comments

What do you think?

View comments

Recommended for you

Featured video

INTV

Diversity & Inclusion Awards: 2018 nominations are open

Editor Fred Gabriel and special projects editor Liz Skinner discuss the nomination process for InvestmentNews' inaugural Diversity & Inclusion awards.

Latest news & opinion

SEC Chairman Jay Clayton outlines goals for a new fiduciary standard

Rule should provide clarity on role of adviser, enhanced investor protection and regulatory coordination.

Advisers bemoan LPL's technology platform change

Those in a private LinkedIn chat room were sounding off about fears the independent broker-dealer will require a move to ClientWorks before it is fully ready.

Speculation mounts on whether others will follow UBS' latest move to prevent brokers from leaving

UBS brokers must sign a 12-month non-solicit agreement if they want their 2017 bonuses.

8 apps advisers love for getting stuff done

Smartphone apps that advisers are using in 2018 to run their business more efficiently.

Galvin's DOL fiduciary rule enforcement triggers industry plea for court decision

Plaintiffs warned the Fifth Circuit that Massachusetts' move against Scottrade signaled that the partially implemented regulation can raise costs for financial firms.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print