Tax Law Update

Late Monday, December 6th, President Obama announced that he had reached a compromise with Republican Senators for a two-year extension of the Bush-era tax cuts, plus two years of a $5 million federal estate tax exemption and 35% maximum federal estate tax rate, in exchange for a 13-month extension of unemployment insurance benefits (including a 2% reduction in payroll tax, from 6.2% to 4.2%, in 2011).

Almost immediately this compromise drew fire from both sides of the aisle. Reports from TheHill.com reflect that Republicans and Democrats alike are criticizing various elements of this deal. For example, in Republican ranks uneasy, await details of tax deal with Obama, TheHill.com quotes the Chairwoman of the Tea Party Caucus, Michelle Bachmann, and concludes that “Congressional Republicans could balk at voting to extend all the tax cuts for two years if it’s tied to a long-term extension of jobless benefits.”

And in Democrats to draw line at estate tax after Obama’s deal with Republicans, TheHill.com quotes Nancy Pelosi as saying the estate-tax provision was “a bridge too far.”

By Wednesday, December 8th, it was clear that there is little agreement between the President and lawmakers from his own party. In White House says Democrats partly to blame for tax-cut deal with GOP, TheHill.com reports that White House communications director Dan Pfeiffer said that their own party (and particularly Senate Democrats) is at least partly to blame for the deal. “Pfeiffer's remarks underscore the tensions between the White House and members of its own party on Capitol Hill, where Democrats have threatened to vote down the tax proposal.”

Thus it appears highly unlikely that this compromise will become law (at least not as is). (This information was reported in the WealthCounsel Weekly December 9, 2010)