For months, conventional wisdom has been that wealthy taxpayers will face an increase in the top rate next year to 39.6 percent from the current 35 percent.
However, that rise is no longer a certainty.
President Barack Obama and congressional Democrats want to maintain Bush era tax cuts for families earning less than $250,000 a year and boost taxes for those who make more.
Meanwhile, Republicans want to preserve the reductions for all income brackets.
The wrangling in Congress may lead to a one-year extension of the cuts for everyone, says Roberton Williams, a senior fellow at the Tax Policy Center.
“The simplest solution this year would be to say, ‘We have a struggling economy. We don’t want to raise taxes at all,’” he told Bloomberg.
“It’s a compromise that would get things past the end of this year.”
If Congress does nothing, all tax brackets revert next year to the rates before the 2001 and 2003 reductions.
But incumbent congressmen will likely face angry constituents in November elections if taxes go up. So legislators have strong incentive to do something soon.
That means Democrats might be willing to give in to Republican demands for a year.
Still, most experts say taxes will ultimately rise.
“You can’t solve the deficit problem with spending cuts alone,” Clint Stretch, director of legislative affairs at Deloitte & Touche, told Barron’s. “It’s inevitable that we’re going to have to raise taxes.”
Former Federal Reserve Chairman Alan Greenspan, whose backing of George W. Bush’s 2001 tax cuts helped persuade Congress to pass them, said lawmakers should allow the reductions to expire at the end of this year.
“They should follow the law and let them lapse,” Greenspan recently told Bloomberg Television, citing a need for the tax revenue to reduce the federal budget deficit.
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