“Bright star, would I were steadfast as thou art.” John Keats
Another two year patch. By a lame duck Congress. That is what Obama’s tax deal is. The proposal which has now passed the Senate and is currently before the House is posed to follow the patch of the past ten years known as the Bush tax cuts, or EGTRRA, which were passed in 2001.
Former Republican Presidential candidate Mitt Romney opposes the current bill because there is a need for greater certainty in the tax laws. After two years, if Congress does not act again, the tax rates will revert to the levels they were at in 2001, a big jump. Romney argues that the benefit of keeping taxes low is lost because investors cannot predict if taxes will still be low after two years and therefore the lower taxes do not provide any real incentive to long-term investing. Instead, the next patch will be determined in a Presidential election year, perhaps by another lame duck Congress. Few things can be more uncertain than what will happen then.
The author of the popular Tax Girl blog takes an opposite approach to uncertainty. The pressing need for short term certainty outweighs all other considerations, even her own scruples that the Bush tax cuts are too low. Once this stop-gap is passed, she reasons, then there will be time to carefully craft a long-term tax plan.
This is an urgent matter, true, but it is only urgent because it has not been dealt with in the past ten years. It is hard to see how the next two years will be any different.
Someone first came up with the idea to make the 2001 tax cuts temporary. In a way, this was illusory. Because Congress can change the tax laws at any time. All laws passed by Congress are temporary and always have been.
Making the latest proposal good for only two years merely increases the chances that the issue will next be dealt with by another lame duck Congress, after a Presidential election, in 2012. Is that the right time to next be dealing with this? Probably not.
Until then, let’s do our tax and estate planning the same as always, knowing that change is the only thing we can count on.