|
|
 |
|
| Decision 2004 |
Paying for Lunch
Michael Sisk
09/01/2004
|
Hodge predicts that the
administration would tie this into a larger tax reform effort. An emphasis on
consumption taxes and de-emphasis on savings and capital gains taxes would be
consistent with Bush’s past preferences.
“If Kerry wins but there is still a Republican-controlled Congress, the likelihood of an increase in taxes is still not all that significant. That stalemate could project forward a couple of more years.”
—Wes
French, executive vice president, Wilmington Trust |
A tax reform could include
adjustments to the alternative minimum tax. This parallel tax code, designed to
ensure that affluent Americans do not escape taxes altogether by using tax
mitigation strategies, is now ensnaring increasing numbers of middle-class
citizens, and may therefore eventually nullify the effects of Bush’s tax cuts.
Bush may also tighten current rules on charitable giving. A bill currently
working its way through the Senate Finance Committee seeks to require a fair
market assessment of the value of the gifts taxpayers deduct. Whether the gift
is a car, property or work of art, the legislation would require the reporting
of the actual sale price of an asset, not just its theoretical value. Bush could
sign such a bill without breaking his tax promises.
 The tax environment under
a Kerry administration is more uncertain. He has promised to roll back tax cuts
that only benefit families making more than $200,000 a year. Specifically, he
would seek to restore the top two tax rates to their levels under President
Clinton—the 39.6 percent and 36 percent rates (today the highest rate is 35
percent). He would also raise the capital gains tax back to 20 percent and the
dividends tax from 15 percent to 39.6 percent for families on income earned
above $200,000.
Kerry says that he would provide a tax break for small
businesses and family farms by immediately raising the estate tax exemption to
$4 million for a family and $10 million for a family-owned business or farm. He
indicates that he would maintain the estate tax for the largest
estates.
| Many believe that deficits hurt the economy by driving up interest rates.
William G. Gale, an economist at the Brookings Institution in Washington, D.C.,
and codirector of the Tax Policy Center, says, “The deterioration in the budget
outlook since January 2001 will, by 2012, raise interest rates by 125 basis
points, reduce annual national income by $340 billion (more than $2,900 a household), and increase U.S. indebtedness to foreign investors. The adverse
effects would persist and grow over time.” |
Kerry also promises to keep government spending under control and to
seek to eliminate corporate welfare. However, many wonder if Kerry will have the
political clout to raise taxes.
Clint Stretch, director of tax policy at
Deloitte & Touche and a veteran of the legislative counsel staff to the
Joint Committee on Taxation, believes the estate tax cut would be most in danger
of repeal under a Kerry administration. The estate tax will probably not drop to
zero in 2010, as currently envisioned, Stretch suggests; however, the exclusion
may rise.
Market Realities
The political landscape is not the only factor driving
tax policy; the financial markets may have an even greater effect than political
exigencies. “We don’t know what message Wall Street will send about fiscal
discipline next February,” Stretch notes. “Whatever that is, Congress will
go along.” He remembers being summoned in February 1982 to the office of
then-chairman of the House Ways and Means Committee Dan Rostenkowski. Wall
Street financiers had told Rostenkowski they thought the deficits created by the
Economic Recovery Tax Act of 1981 were too high. The result was immediate: The
White House and Congress pushed through the Tax Equity and Fiscal Responsibility
Act of 1982 in order to offset some of the revenue loss.
|
|
|
|
|
|
|
