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Friday, November 12, 2010

Betting on the Estate Tax

With all the uncertainty surrounding the federal estate tax, I still refuse to speculate on what will happen. I did however make a bet with my father (Dinner) over when a decision will be made on the estate tax.

My father believes that since Congress is in a lame duck session, they will try to act and create a little certainty to make things clear for planners and the citizens of this country.

I believe that the Democrats have absolutely nothing to gain by acting before 2011. If they vote in 2010, they will want to vote on something less than a full repeal of the estate tax - which is effectively a tax increase.

I believe that the Democrats can and will position the sunset as a Republican act (since it was done in 2001 when the Republicans controlled the House, Senate and Presidency). Then, in 2011, when the estate tax exemption returns to $1 million and up to a 55% tax rate, the Democrats can offer a tax cut without having to offer a full repeal.

The Democrats can then force the Republicans to vote against tax cuts that they don't like.

Who will win the bet? Clarity or politics. I've bet on politics winning the day.