The 111th Congress will soon pass into history and perhaps will best be remembered for having set the all time record for Congressional irresponsibility … even surpassing the machinations of the 107th Congress, which enacted the so-called Bush tax cuts and, simultaneously, provided for their automatic expiration on December 31, 2010. Apparently that Congress assumed, naively of course, that a more responsible group of lawmakers would fix the problem that they kicked down the road before the consequences of presenting individual Americans and the business community with the economic chaos the current legislated uncertainty has engendered. Perhaps any assumption that any future Congress would behave rationally with the public interest as their north star was the most irresponsible action they took.
While the failure to deal with income and estate tax policy has gotten all the attention as the lame duck session of the 111th Congress convened last week, it was hardly the only failure to do their job that our elected representatives either ducked or senselessly enacted in 2010. Apparently the voters on November 2 agreed and fired a goodly portion of this ruling clique. Whether the expectations of the electorate are met by the incoming 112th Congress remains to be seen, but so far there appears to be no reason for exuberance. Some GOP members of the new House majority are already defending the concept of earmarks as a Congressional prerogative and some Republican senators appear to take that position as well, originally including Senator Mitch McConnell, the Senate minority leader who finally came to his senses and announced that he would support a full earmark ban. While it is true that earmarks are a tiny fraction of the federal budget, they have taken on symbolic significance to the voters who tend to see them as a reliable indicator of the lack of spending discipline.
In addition there appears to be little willingness to resolve some of the many disputes which paralyzed the 111th Congress, many of which could be resolved in an hour if our lawmakers would stop trying to score political points or treat every issue as if failure to get 100 percent of what they want amounted to a complete abandonment of principle.
It is not easy with precision to discern all the messages voters send in an election, but a few things can be said with certainty about the most recent one: the voters don’t want radical new policies based on far left ideology jammed down their collective throats; they want the government out of their private lives; and they want spending reined in before America goes the way of Greece or Ireland.
So what remains to be done to accomplish at least the minimum of what the legislative branch is required to do in discharging its obligations under the powers granted to them by the US Constitution? For starters, consider the fact that for the first time since the Budget Act of 1974 was enacted, Congress failed to pass a budget — not surprising since the House failed even to write a budget. This is not just irresponsible; it is reckless. The economy is in poor condition, no strong recovery seems to be in sight, world confidence in America’s leadership is declining, the dollar has been in free fall, gold is going through the roof, our overhanging debt is beyond imagination and yet our Congress can’t get its act together and provide a modicum of certainty about near term spending and revenues. They simply duck for cover and pass Continuing Resolutions, which continues all spending at last year’s record levels.
Related to this uncertainty, Congress has failed to reach closure on the so‑called extenders bill under which the chimera of the “doc fix” is included (the doc fix is what prevents a reduction of payments to doctors that treat Medicare patients). This past year, the “doc fix” was enacted through November 30, 2010, postponing a true substantive decision for 2011 or beyond or the lame duck session.. Keep in mind that the “doc fix” was stripped from the Obamacare legislation so as to disguise the true cost of that ill conceived, largely unwanted and recklessly enacted law.
The extender bill also contains a wide array of expired tax provisions, including the annual waltz to prevent the unindexed Alternative Minimum Tax from hitting the middle class. Extending unemployment compensation beyond its current limit of 99 weeks is pending. Notwithstanding the incredible hardship many of the unemployed face, we are reaching beyond European socialism by taxing people who work to pay people for extended periods not to work.
Also likely to be buried in further extender legislation are other goodies such as a bailout of state Medicaid programs and a subsidy on insurance premiums to unemployed workers who elected COBRA coverage. The costs of these stipends are to be paid for by limiting foreign tax credits that U.S. businesses can claim for taxes paid to other countries. Congress claims this provision is merely to keep U.S. jobs at home … but a tax is a tax is a tax.
So back to the beginning … the expiring 1991 tax cuts. Without Congressional action tax rates will rise for all taxpayers on January 1, 2012. The president wants to retain the lower rates only for middle class taxpayers, stating that there is no justification for giving a tax break to the “wealthy” … who he defines as joint filers earning over $250,000 and who he calls millionaires and billionaires who don’t pay their fair share. The GOP wants to extend the existing rates for everyone.
Other tax planning issues hang in the balance regarding permitted deductions in 2010, minimum distributions from IRAs, deferral or acceleration of income, etc. Until this is decided the IRS cannot issue withholding tables to employers for pay periods starting in January.
And what about estate planning? Congress, in its slavish adherence to budgetary “scoring” passed estate tax reform 10 years ago by gradually increasing until 2009 the amount of assets each taxpayer can exclude from this tax until January 1, 2010, when it was phased out entirely — only to spring back to life in 2011 with the pre-reform exclusion and rate ($1 million exclusion per estate and a 55% rate). So let’s consider this:
Pop, a lovable 75+ year-old family guy with two adult kids and, say, five grandchildren, is terminally ill (expected to pass on within the next 12 months), has suffered a serious stroke and is on one of the 60,000 ventilators that reside among the estimated 100,000 ICU beds in hospitals throughout the United States. Pop has worked hard all his life, has been reasonably frugal and has accumulated a net worth of about $3 million. Should Pop expire before midnight on December 31, 2010, his entire estate will be exempt from tax and will pass to his two children and nine grandchildren tax‑free. Given that his entire estate represents what he had been able to save after paying taxes on the income he earned during his lifetime, that would seem fair in a society that rewards individual initiative, hard work, savings and incentives to take care of one’s children and grandchildren.
However, thanks to the imbecilic machinations of our esteemed Congress a decade ago, if Pop expires one second after midnight on December 31st, (or anytime thereafter) our government will grab 55% of two‑thirds of that hard‑earned remnant of Pop’s lifetime of labor (i.e., net of a $1 million estate‑tax exemption). A second before midnight on the 31st the kids and grandkids get the full $3 million to help them through the balance of their lives. One second after midnight and the government grabs $1.1 million to help fund its insatiable appetite for revenue.
As the days and hours of December 2010 tick away, doctors will pose the heart tearing question that is posed all the time to thousands of family members throughout the land who have terminally ill relatives: “How long do you wish to keep Pop on the ventilator given that he has slim to no chance of recovery?” Ordinarily, we would wager that the vast majority of families would conclude that even if there is a slim chance of recovery for a few months or a year, they would go the extra mile to give their loved one that chance. But now, in this example, that decision to give Pop a shot (albeit a long shot) at living to see another season or two will cost the family $1.1 million. How could any sane Congress have passed legislation that would create such a predicament for their fellow citizens? Unfortunately, the answer to the doctor’s question this December may, sadly and all too often, be: “so long Pop.”
By Hal Gershowitz and Stephen Porter
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