In the wake of President Obama’s election victory, the Administration and Democrats in Congress are likely to get much of what they seek in high-stakes negotiations underway for resolving on the fiscal cliff, according to life insurance representative speaking at a panel discussion on Friday.
Marc Cadin executive vice president of government affairs at the Association for Advanced Life Underwriting, Washington, D.C., presented his analysis of the range of fiscal issues facing Washington during an opening general session on Friday of the 23rd annual Executive Conference. Produced by Summit Business Media and The National Underwriter Company in collaboration with conference sponsor Ernst & Young, the conference session also featured speakers Steven Bensinger and Robert Hartwig, who explored trends affecting the life and P&C industries.
Because the president’s reelection has strengthened Democrats’ hand in the fiscal cliff negotiations, said Cadin, income tax rates on wealthy Americans are almost certain to rise.
“The president’s position is that tax rates for the top two percent [of the most affluent Americans] must rise,” said Cadin. “So a tax rate hike is going to happen–no question.
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“Democrats realize that the longer they wait, the greater will be pressure on Republicans to cave to their demands,” he added. “the Dems now hold most of the cards.”
A key reason for Democrats’ increased leverage, he added, is that income tax rates are due to go up across the board if Congress does nothing. Absent an agreement, the Bush-era tax cuts will come January 1, expire and return to the pre-2001 marginal income tax rates. For individuals, these will range from 15 percent to 39.6 percent, the latter for those earning in excess of $382,650.
The current estate tax unified credit exclusion and top tax rate, currently $5.1 million and 35 percent, respectively, are also due to revert the pre-2001 estate tax regime: $1 million and 55 percent, respectively.
Based on figures from the CBO and Joint Committee on Taxation, federal taxes would increase by a total of $423 billion in 2013 if the Bush tax cuts are allowed to expire. The non-partisan Tax Policy Center estimates the average tax increase for 83 percent of households at $3,701.
Given the Democrat’s strong hand, said Cadin, fiscal negotiations will center around three questions: (1) What the new marginal income tax rates will be; (2) How much in additional revenue from the higher rates will be applied to deficit reduction; and (3) how entitlements like Medicare and Social Security will be impacted in the coming debate on tax reform.
“Republicans in Congress believe that entitlement reform in Congress is necessary to save the country,” said Cadin. “If we don’t reform, the country will no longer exist as it does.”