Big Fight Ahead on Expiration of Bush Tax Cuts - NYTimes.com

I've posted a few times on the estate tax debate going on in Congress. As you recall, the federal estate tax exemption is scheduled to go back to $1 million next year unless Congress acts.

Most people - estate lawyers included - strongly believe that Congress will do something prior to year-end. However, I'm not so sure. In fact, it seems to me more likely that all taxes will be moving sharply higher next year, including taxes on dividends.

To begin with the obvious: the government needs the money. In this morning's papers there were articles noting that the deficit for fiscal 2010 (which ends on September 30) is now scheduled to be around $1.5 trillion. This is higher than previous estimates due to shortfalls in tax revenues. An estate tax - however unfair - is still levied on someone who will no longer be voting (except in part of Chicago or Texas - just kidding).

Next, there is no sympathy for the wealthy, especially as stories continue to come out on executives paying themselves big bucks for mediocre performance, especially in the financial sector.

Finally, Congress is at some loggerheads now that any bipartisan agreements seem almost impossible. With midterm elections only a few months away, no Congressman wants to be seen voting for higher taxes. On the other hand, if no votes are actually taken, taxes will automatically rise without anyone having to act.

Here's an excerpt from the Saturday story in the New York Times:

If no tax legislation is passed, all the major tax reductions passed under President George W. Bush in 2001 and 2003 will expire, with rates reverting overnight on Dec. 31. The top marginal income tax rate, for example, would go back to 39.6 percent from 35 percent now, with corresponding increases in rates for lower income brackets.

Given the partisan gridlock of recent months, there is a chance that the battle could go down to the last minute, or even — in the face of a stalemate — that the tax cuts could be allowed to expire completely, a development that Republicans are already heralding ominously as the largest tax increase in history and that lawmakers in both parties say could be the worst outcome.

Big Fight Ahead on Expiration of Bush Tax Cuts - NYTimes.com