Housecleaning

Nobody wants a partisan tax blogger. It’s so… impolitic, if you will. So, I’m not going to offer any real commentary about the election on yesterday in terms of winners and losers. You can do your own Wednesday morning quarterbacking.

That said, the face of the House has changed drastically with the loss of 27 seats by the GOP and a pickup of 28 seats by the Dems (the Independents lost a seat). The House now has its first female House Speaker, Nancy Pelosi of California, and she vows that things are going to be different. And what kind of “things” is she talking about? Well, taxes, for one. With a nod to the tax cuts passed under a GOP Congress a few years ago, she said, “We will revisit the tax cuts at the high end in order to give tax cuts to the middle class.”

Yeah, yeah, yeah. But you’re wondering, “what does it mean for me?”

Well, with the understanding that politics are often inexplicable, I offer my quick observations and predictions about what will and will not change under the Tax Code with a Democratic House:

• The federal estate tax will not be repealed.
• The feds will offer tax incentives to automobile manufacturers to raise fuel economy levels.
• Tax breaks previously granted to oil companies will be rolled back though I do not expect a “windfall” tax on record-breaking profits from those companies.
• Offshore tax shelters for corporations will be given special attention; I anticipate some kind of excise tax on corporations which create these entities in an effort to avoid taxation.
• Gradual tax cuts will be enacted for the middle class. The previous tax cuts were found to benefit the top earners in the US: 54% of those tax cut benefits went to households with incomes of more than $1 million, the top 0.2% of households. Another 43% of benefits went to 3.5% of households with incomes between $200,000 and $1 million. Yeah, that math (as reported by the Urban Institute-Brookings Institution Tax Policy Center) means that 97% of the recently enacted tax-cut benefits went to the 3.7% percent of households. My guess is that the remaining 96.3% of households showed up at the polls on Tuesday.
• The Alternative Minimum Tax Relief cuts will not be made permanent nor extended.
• The increase in the child tax credit will be affirmatively made permanent rather than a mix of WFTRA and EGTRRA provisions.
• Dividend and capital gains reductions will sunset.
• Talk of a flat tax will, well, fall flat.

Of course, if the House does introduce any of these scenarios, it would likely face a veto from President Bush and an uphill battle in a relatively evenly divided Senate. Fasten your seatbelts, ladies and gentlemen, we’re in for an interesting two years!

Kelly Phillips Erb

Kelly Phillips Erb is a tax attorney, tax writer, and podcaster.

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