Potential Impact of Election Results on Tax Policy

Larry Maddox recently returned from Schwab’s IMPACT conference in Boston where he listened to a presentation by Greg Valliere, a well known Washington political analyst who focuses on the efforts of the White House and Congress to shape fiscal policy. In addition to calling the recent election outcome right – Republican Congress and Democratic Senate, he also provided some expectations about how and when the unresolved tax issues might be resolved and we wanted to share his thoughts with you.

Income Tax Changes

Valliere expects the Bush Tax Cuts to be extended for at least 2 years for all taxpayers. He does not expect this to happen until the end of the year, so we will need to wait to know for sure. The reason for the delay is that there are a lot of issues involved and he thinks it will take time to hammer out the details. From a political standpoint, he explained that a large portion of the Senators standing for re-election in the 2012 races are democratic (by a 2-1 ratio). Given the dismal results for the Democrats in the midterms, he thinks they will vote for extension as a matter of political survival, if not ideology.

Estate Tax Changes

Valliere also expects the estate tax law to return to a more traditional structure, perhaps with a $3.5 million dollar exemption, rather than reverting to the $1 Million exemption which will occur without any action. Another speaker, a well-known and influential estate planning attorney, Jonothan Blattmachr, agreed with Valliere’s expectation and added that “there is no way” that pending changes to the estate tax would be retroactive to this year, 2010 (when the estate tax expired.)

These two predictions seem well reasoned to us and I’m sure will be warmly embraced by our readers. However, caution remains in order. Neither of these is a sure thing and we will need to stay tuned for developments and hopefully some resolution of these looming uncertainties. We will continue to keep you advised as the smoke clears.

Please call if you have any questions or comments.

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