Happy Thanksgiving to everyone. Here’s a quick update on the tax outlook.
Congress returned last week, but didn’t make much progress. The big news was the cancellation of the bipartisan leadership meeting at the White House on the 18th; that meeting is now scheduled for November 30th. Politico has a really good write-up on what happened, but what was the impact on the tax debate?
In our view, mostly timing. Nobody expected the get-together to result in a deal, but we did expect it to jump start discussions, with the possibility of some sort of agreement worked out by the time Congress returns. Now, that schedule has been set back two weeks making a late December adjournment a distinct possibility. It also means there’s less time for all of the parties to come together, so it also increases the chances that there’s a stalemate and nothing happens before Christmas.
As for the policy, the positions of the various sides are slowly emerging.B Majority Leader Reid wants to hold two votes after the November 30th meeting — one on his plan to extend the middle-class relief only, and one on Minority Leader McConnell’s competing plan to extend everything for two years.
Both plans would need 60 votes to pass, which appears unlikely the first time out, which is one of the reasons we’re expecting a long December session. It’s possible the two sides come together, but it’s going to take time.
Meanwhile, at the White House, different spokespeople appear to be staking out competing positions. One advisor says the President is open to extending the upper-income tax rates, while another says he opposes making permanent anything but the middle-class tax relief. Keep in mind though that both of these positions are consistent with the idea floated by the White House prior to the election: “decoupling” the middle class tax relief from the upper-income tax relief. Their idea was to make the middle-class provisions permanent while extending the upper-income provisions one or two years — long enough to get us past the recession and subsequent recovery. Statement confusion aside, our take is that they are still pushing the decoupling approach.
Finally, in the House, there’s talk the Speaker will bring up a middle-class bill under the so-called “suspension of the Rules” process. Suspension bills are not open to amendment, debate on them is limited to 40 minutes, they require a two-thirds vote to pass, and are usually reserved for small, noncontroversial bills.
As we’ve observed, we believe a majority of House members would vote to extend all of the tax relief if given the chance, so the Speaker has little or no chance of seeing a middle-class-only bill adopted using the suspension process. Therefore, a suspension vote would be more about demonstrating control, not enacting legislation.
Considering all of these factors, we’re looking at a three-step legislative dance this December. Step One: White House meeting on November 30th. Step Two: Preliminary, and, ultimately, failed votes in both the House and Senate. Step Three: The real negotiations begin.
Which brings us to the bottom line: Speaker Pelosi doesn’t represent the majority of House members on the tax issue. If she brings up a middle-class bill under the regular order, Republicans will offer their “extend everything” alternative, and it’s likely they have the votes.
So, the Speaker is in a position where she could call up an issue where she knows she will lose, or refuse to bring it up and let everyone’s taxes go up in January. It’s really up to her.
The one person in the best position to influence her on this decision is President Obama. If he says he’s willing to sign a one- or two-year bill to extend everything, the Speaker would likely follow suit. If, on the other hand, he sticks to his current position, it is looking more likely that, come January 1st, taxes are going up.