December 16, 2010 - 12:00 am
As the Senate and the House dither and dabble over what the income, estate and other tax rates will be for the next two years, businesses and individuals who would like to strike out on a bold course are left with uncertainty as to what the future holds.
After two years, what then?
As one wag noted, the tax code is being written in pencil.
The Bush tax rates have been on the books since 2001 and 2003. But extending them is being called a tax cut.
On Wednesday the Senate, on a vote of 81-19, passed and sent to the House an $858 billion package that extends the current income tax rates for two years and extends jobless benefits and reduces Social Security taxes for one year. Though some House Democrats have expressed displeasure that the death tax is not high enough, the Democratic leadership says they expect the stop-gap bill to ultimately pass largely intact and go to the president for his signature. If the current rates were to lapse, a typical working family would face a 2011 tax increase of more than $3,000 come Jan. 1.
“Death and taxes, it is said, are life’s only two certainties,” former Massachusetts Gov. and once and future Republican presidential candidate Mitt Romney writes in an op-ed in USA Today. “But in the wake of President Obama’s tax compromise with congressional Republicans, only death retains the status of certainty: The future for taxes has been left up in the air. And uncertainty is not a friend of investment, growth and job creation.”
The Wall Street Journal reported in a front page story this week that making tax rates temporary is practically the norm in Washington now. Back in the 1990s there were typically less than a dozen temporary taxes. Now they number 141, according to the Joint Committee on Taxation.
The newspaper quoted a number of small business owners who complained of the damper uncertainty is having on their companies. Some said they would even trade a modest tax increase for greater certainty.
If President Obama can be taken at his word, as expressed in post-compromise press conferences, the tax status is almost certain to be upended in just two years.
“Well, look, I’ve got a whole bunch of lines in the sand,” the president said. “Not making the tax cuts for the wealthy permanent — that was a line in the sand.”
We know what happened to all those people who stepped over the line in the sand drawn by Col. William Barrett Travis at the Alamo.
Mr. Romney points out “uncertainty about tax rates translates directly into a reduced propensity to invest and to hire. With only a two-year extension, investors know that before their returns are realized, tax rates may be jacked up to the levels favored by President Obama.”
As the old cartographers wrote of uncharted territory, “Here might be dragons.”