By now you've heard the big news. Bush won a major legislative battle in the taxation of investment income when the House agreed to extend lower rates for capital gains and dividend income for two more years. Of course, those rates were already set through 2008, so there was no immediate need to worry about them. Meanwhile, several other popular tax breaks, discussed in my earlier post on now-dormant tax overhaul efforts, expire when the clock rolls past 11:59 p.m. on Dec. 31. What about them? And what happens now to those of us -- teachers, students, folks in high sales-tax states -- who are looking for assurance that these soon-to-disappear breaks will still be around to help us lower our future tax bills?
Welcome to the wonderful world of lawmaking.
Politics and policy are two different animals, and right now Capitol Hill is embroiled the political struggle to demonstrate which side has the most will to push through pet projects. Continuation of the lower capital gains/dividends rates is just the latest weapon in this perennial war in Washington, even though those existing lower rates still have years on the books. And the battle of political wills will continue. As reported in the Washington Post, New York Times and other major news outlets (several story links can be found at TaxProf), the Senate is uncomfortable continuing favorable tax treatment of investment income that benefits a lot of wealthier folks while simultaneously cutting federal programs such as Medicaid, food stamps, farm subsidies and child-support enforcement that help the less well off.
Who will win this battle of political wills when the measures to go conference committee? The Washington Post takes a look at the difficulties of merging the two bills. But if I had to bet, I'd put money on lower rates for investors. But we probably won't know for sure until after the House and Senate return from Christmas break.
C'mon. You don't really expect Capitol Hill denizens to actually let something like debating issues and legislating measures that affect the country ruin their holidays, do you? So all tax breaks, including those that expire at the end of the year (and could affect you and me and, according to the Washington Post, 17 million of others), must wait until after the personal Congressional gifts are opened. Stay tuned.