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So Says Speaker Nancy Pelosi

By Children’s Home Society of Florida Foundation

Members of both Parties joined the debate this week on income taxes. Without action by Congress, all of the tax reductions in the 2001/2003 tax acts will be phased out on January 1, 2011.

White House Steadfast

The White House has steadfastly maintained that the reductions for lower and middle-income brackets should be retained, while the reductions for the top brackets must be phased out. Under the White House proposal, individuals with incomes over $200,000 ($250,000 for married couples) would pay higher taxes. The top two brackets will increase to 36% and 39.6%. In addition, the White House proposes that the capital gains tax rate returns to 20%.

The Concerns

Senator Ben Nelson (D-NE) has expressed concern about the increase in taxes on upper income individuals. He is joined by Sen. Charles Grassley (R-IA), who has consistently supported extending all of the 2001/2003 tax brackets. Sen. Grassley suggested that it would be important to continue the tax reductions in order to encourage small business owners to hire new employees and reduce unemployment.

A Temporary Extension?

A long-term deficit hawk on the Democratic side is Senate Budget Committee Chair Kent Conrad (D-ND). He stated for the first time this week that he may be open to a temporary extension of the top brackets at the current 33% and 35% rate. Senator Conrad indicated that at some future time it will be necessary to “pivot” and move aggressively toward deficit reduction. However, he questioned whether the economy is strong enough to start the process of tax increases this year.

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Assessment

House Speaker Nancy Pelosi (D-CA) joined the debate with a strong affirmation of the White House position. She stated, “Our position has been that we support middle-income tax cuts. The tax cuts at the high end have increased the deficit enormously and they have not created jobs in the eight years.”

Editor’s Note: With Congress soon turning to the fall election, it is highly probable that action on income taxes will be deferred until after the election. With bipartisan concern about unemployment and the economy, it is quite likely that the tax reductions at the lower and middle brackets will be extended. The result for upper-income individuals is still uncertain.

Conclusion

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Filed under: Financial Planning, Taxation | Tagged: Chair Kent Conrad, income tax, Nancy Pelosi, Sen. Charles Grassley, Senator Ben Nelson, tax brackets. | 2 Comments »