As the president and Congress prepare to negotiate contentious questions associated with the fiscal cliff–across-the-board spending cuts and Bush-era tax cuts that are due to expire at year-end–expect a quick resolution of non-controversial issues, but a potentially months-long delay addressing the politically charged ones.
This is the near-term political outlook of Leon LaBrecque, a managing partner and founder of LJPR, LLC, a Troy, Mich.-based financial planning firm that serves individuals and business owners. The following are excerpts from LaBrecque’s interview this month with NUL Senior Editor Warren S. Hersch
Hersch: How do you foresee the president and Congress approaching the year-end fiscal cliff? Will they reach agreement on the key issues to be debated?
LaBrecque: Let’s start with what will probably be easily be fixed: Medicare reimbursements for doctors and the alternative minimum tax or AMT. In respect to the first, the $15 billion in Medicare reimbursements that doctors received in 2012 will very likely be extended in 2013.
As to the alternative minimum tax, I anticipate that Congress will reset the AMT exemption or patch for next year. That’s good news for some 30 million Americans who, without the patch, would be subject in 2013 to the AMT–a horrendous tax for those who have to pay it.
See also: 3 fiscal storms brewing
Hersch: What fate awaits the payroll tax and the Affordable Care Act’s unearned income Medicare contribution tax?
LaBrecque: The payroll tax has been relatively unsuccessful in stimulating the economy. It’s possible that Congress and the President will agree to extend the payroll tax holiday before year-end. As to the UIMC, I’m 100 percent certain this is tax will remain law because the president got reelected and because the Democrats retain a majority in the Senate. In my opinion, there is virtually no chance that Omamacare, or any of its provisions, will be repealed or modified anytime soon.
Hersch: How do you expect that Congress will deal with the budget sequestration–the $1.2 trillion in automatic spending cuts mandated by the 2011 Budget Control Act?
LaBrecque: The current lame-duck Congress will extend the sequestration deadline to the first or second quarter of next year, when the new, 113th Congress is in session. Neither Republicans nor Democrats like the sequestration’s sledgehammer approach to resolving the nation’s budget problems, but each party also doesn’t like like the other side’s solution for avoiding the fiscal cliff. So I expect they’ll agree to disagree for three to six months before debating this issue again.
Hersch: How do you expect that Congress will deal with the debt ceiling and the Bush-era tax cuts?
LaBrecque: Neither side of the aisle wants to address the debt ceiling now, so the debt ceiling deadline will also be extended. I believe the Democrats will also vote to extend the Bush tax cuts if Republicans agree to raise tax rates on wealthy individuals. The only question will be at what income level–whether $250,000 or a higher income level higher–the new tax brackets will kick in.
Because Democrats and Republicans have opposing positions on this issue, it’s possible the Bush income tax cuts will not be resolved by year-end. But a return to the pre-2001 income tax regime could be devastating economically, pushing us back into a recession.
Unfortunately, this issue may not get resolved because of quibbling over two numbers: income levels that invoke the highest two tax brackets. But if both sides can agree on cutting tax loopholes and raising tax rates in a revenue-neutral way, then compromise might be achieved.