Capital Corner: Doctor in the House

Jim Brandenburg, CPA, MST Shareholder - Tax   email | bio
October 2010

Congress is returning home for a final month of campaigning. However, Congress left many issues open for the post-election sessions in November and December. These "lame duck" sessions often have some legislation to clean up but, this year, significant pieces of important bills must be addressed. Congressional leaders view many legislators as sitting ducks this year, so several key votes were postponed. But pushing these matters off until November could change the dynamics of passing these bills depending upon the results of the November 2nd elections. For instance, how will retiring members, who are no longer accountable to their constituents, react in these lame duck sessions?

What ducks are still left in the pond for this year?

• "Bush Tax Cuts" - This will be one of the more closely watched issues this fall and much uncertainty looms. Will tax rates be kept the same in 2011, or will only the lower tax rates be leveled off and the maximum rates increased? Will the 15 percent capital gains rates stay the same or be raised to the scheduled 20 percent? Will the 15 percent dividend rate rise to upwards of 40 percent? Even the marriage penalty tax needs to be addressed.
• Estate Tax - As we inch closer to January 1, 2011, "new/old" estate tax changes are set to take place. Unless Congress acts this fall, the estate tax will be reinstated in January, using 2001 estate tax rates of 55 percent and an exemption of $1,000,000. Congress may, however, act this fall to come up with a new estate tax regime, and some predict an estate tax exemption in the range of $3,000,000 to $5,000,000 and a maximum rate of 40 to 45 percent. What is also uncertain is how 2010 will be treated as we are now over nine months into the year with no estate tax, and the logistics (and possibly the legality) of a retroactive estate tax might be difficult.
• Extenders - A number of tax provisions expired at the end of 2009 and it is likely that many, if not all, of these will eventually be extended by Congress. Included in the extender provisions are the R&D tax credit, sales tax deduction and IRA distributions to charities of up to $100,000. The AMT exemption also needs a "patch" for 2010 to be similar to 2009 levels. Otherwise, the exemption for a married couple drops to $45,000 and will greatly increase the number of people impacted by AMT.

It is likely that all of the above items will see legislative action at some point this year. Eventually, Congress will get its ducks in a row and pass these bills. However, with the year winding down, some extras are often slipped into bills without much attention and debate. Also, some of the legislation may be combined into much larger bills just to get things passed.