Economic and Political Pressures Will Influence Tax Policy

It is an interesting time in our nation’s capital. The latest polls show that the Republican Party may gain more than the 39 seats necessary to tip the balance of power their way in the House. Noting in a recent blog post that control of the Senate is also up for grabs, Washington insider and CNBC commentator Greg Valliere, said the Democrats need a “pre-election Hail Mary pass.”

Valliere floats the possibility for the following scenario: What if, now that lawmakers have returned to D.C., President Obama brings together leaders of both parties and negotiates a deal to extend the Bush tax cuts indefinitely for 97% of Americans, and perhaps for two or three years for the wealthiest Americans whom he initially targeted for tax increases?

While Valliere says a tax cut deal should be a “no-brainer” given the struggling economy, he expects politics to get in the way – on both sides of the aisle. He questions whether there are enough moderates who “recognize that this is a terrible time to raise taxes on anybody” and sees little possibility that the Republican leadership that has refused to compromise thus far would do so on an issue that has great potential to help them win seats and gain Congressional control this fall.

Only time will tell. However, in the meantime tax planning is a challenge as we are still unsure how tax policy will change next year.