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| Decision 2004 |
Paying for Lunch
Michael Sisk
09/01/2004
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Bruce Bartlett, a
veteran of the Reagan administration, who is now a senior fellow at the National
Center for Policy Analysis, agrees that Wall Street sentiment or a market-moving
event—such as a crisis in the housing sector—will force politicians to take
action on the deficit faster than any election-year posturing. “There will be a
triggering event—I’d guess within the next year or so—that turns the deficit
from a nonissue to an issue,” he predicts.
| “It’s widely agreed by experts on both sides that the combination of
entitlements and tax breaks is not sustainable.” |
The deal will most likely involve
large tax increases, Bartlett opines. To get Wall Street’s attention, 1 percent
to 2 percent of GDP per year will need to be redirected toward deficit
reduction; half of that, about $100 billion, will have to come from taxes, he
predicts. To put that in perspective, Kerry’s rollback of tax cuts for families
earning more than $200,000 would only net about $25 billion—none of which he has
earmarked for deficit reduction.
All this is giving professional wealth
managers and their clients a lot to contemplate. “The old knee-jerk that a tax
deferred is a tax saved may not be true now,” JP Morgan’s Weigandt explains.
“With a 15 percent capital gains rate, it’s hard to imagine it going any
lower.”
“The GOP has a 21-seat margin in Congress, so it’s unlikely that, even if Kerry
wins, you’re going to have a huge Democratic majority in Congress. You’re more
likely to have gridlock. It’s not going to be as easy as Kerry is expecting it
to be to roll back all of the Bush tax cuts.”
—Holly Isdale, managing
director, Lehman Brothers |
Sunset Schedule
The Bush administration’s tax cuts are only temporary—although if the
administration gets a second term it may labor to make them permanent. Here are
the current sell-by dates:
Income Tax: The top marginal rate remains 35 percent until 2011, when it
reverts to its 2001 level of 39.6 percent.
Capital Gains: This tax remains at 15 percent until 2009, at which point it
reverts to 20 percent.
Dividends: The tax on dividends is 15 percent until 2009, when it reverts to
the taxpayer’s marginal rate, up to 39.6 percent.
Estate Tax: The exclusion on the estate tax increases, and the tax itself
declines, in stages until 2010, when the rate falls to zero. The next year the
tax rate reverts to 55 percent on everything above $1 million.
Illustration by Matt Mahurin.
Additional Information
 When the Levies Break
 Taxing Decisions
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