A new report on President-elect Barack Obama's tax policies sees his mantle of change perhaps leading him to change some of his tax proposals as he works with Congress next year.
The report, by Clint Stretch and Jeff Kummer of Deloitte Tax LLP, foresees the Democrat-controlled Congress as initially cooperative, but notes that the economic crisis and budget shortfalls could put a damper on some of the president-elect's proposals.
"Between now and the submission of its first budget in February 2009, the Obama administration will confront the hard work of converting campaign rhetoric and promises into actionable legislative proposals," said the report. "Obama will come into office with a supportive Democratic Congress that has significantly increased its majority in both chambers. Part of that congressional election victory may well be attributable to Obama's broad electoral success; nonetheless, as is always the case, the new president will find that even a friendly Congress has a mind of its own."
Obama will need to define his priorities, which include the economic crisis and health care reform. "The current fiscal situation may affect the timing of Obama's longer-term tax agenda," said the report. "For example, although ordinary [income], capital gains, and qualified dividend tax rate increases on high-income individuals were widely discussed in the campaign, the new administration and Congress may conclude that immediate action on many of these proposals that would raise taxes are unnecessary or undesirable in a time of economic uncertainty."
Obama has said he wants to reform business and international tax rules, but the ballooning budget deficit could increase the pressure on him and Congress to raise offsetting revenue for any type of business tax relief. Significant budget shortfalls are likely to restrict the spending and tax programs that the Obama administration can shepherd through Congress, predicted the report. However, the report's authors believe that the core components of Obama's campaign proposals likely will become law in 2011 at the latest. That includes extension of the current tax brackets and rates for low- and middle-income taxpayers; a return to higher ordinary and capital gains rates for individuals with incomes over $200,000, and married couples with incomes over $250,000; actions to protect middle-class taxpayers from the individual alternative minimum tax; and restrictions on certain tax benefits and incentives.
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