Here’s an early Christmas present — the Senate voted this afternoon 81-19 to move forward on the tax deal cut between President Obama and congressional Republicans. We expect the package to pass intact early tomorrow.
For S corporations, the package means the top tax rate on S corporations remains at 35 percent and rates on capital gains and dividends remain at 15 percent for the next two years. On the estate tax front, the plan calls for a top rate of 35 percent and an exemption of $5 million per spouse.
Democratic opposition in the House is coalescing around the estate tax provisions, and if there is an attempt to change the bill, that’s where it’s likely to happen. Leadership there may attempt to raise the tax rate to 45 percent (from 35 percent) while reducing the exemption level from $5 million to $3.5 million. This amendment, however, or any other substantive change to the package, is unlikely to pass for a variety of reasons.
The size of the Senate majority makes it difficult for the opposition to characterize the deal as anything but bipartisan and broadly supported. Moreover, recent polls show the plan is popular with voters, too. According to Chris Cillizza:
Two new national polls out today affirm that political popularity. In a new Washington Post/ABC News poll, a whopping 69 percent support the tax package — support that cross party lines with 75 percent of Republicans backing the deal while 68 percent of Democrats and Independents offered their support.
A new Pew poll showed 60 percent supporting it including 62 percent of Republicans, 63 percent of Democrats and 60 percent of independents. The simple reality for Democrats writ large — and President Obama more specifically — is that they need a win in the eyes of the American public following a disastrous election that saw the party lose control of the House and lose ground in the Senate.
And finally, the clock is working against the opposition. Any deal blocked now will be taken up and passed by the Republicans when they take control in January. So either this week or first thing next year, a package very similar to what passed the Senate will be adopted by Congress and be signed by the President. Good news indeed!
Republican Opposition
We don’t want to overstate Republican opposition to the deal, but a number of high-profile Republicans are publicly opposing the plan, arguing that the party could do better if it waited until the New Year and the new Congress.
Republicans comprised five of the fifteen votes against cloture on Monday, four of whom appear to have opposed the deal because it could be better — Coburn (OK), DeMint (SC), Ensign (NV), and Sessions (AL).B Meanwhile, a number House Republicans have come out opposed to the package. Representative Steve King (IA) and Michele Bachmann (MN) announced their opposition earlier, and Mike Pence (IN) announced his opposition just yesterday, stating:
“ I’ve no doubt in my mind that the first order of business for the new Congress [if the compromise does not pass] will be to enact a bill that extends all the current tax rates on a permanent basis,” Pence continued. “ We’ll do it. We’ll send it to the Senate if this bill falters. There’s always time to do the right thing.”
Republican Presidential candidate Mitt Romney is also opposed, arguing Republicans should hold out for something permanent.
“Given the unambiguous message that the American people sent to Washington in November, it is difficult to understand how our political leaders could have reached such a disappointing agreement,” Romney wrote in an op-ed for USA Today. “The new, more conservative Congress should reach a better solution.”
We’re confident that the Republican House could pass a permanent tax bill. We’re also confident such a bill would stall in the Senate and would be opposed by the Administration. In the meantime, real taxes would be going up on real businesses and estates, starting January 1. Given the circumstances, the agreement achieved by negotiators is as good as the business community could have hoped.