Breakout

White House May Overplay Hand on Tax Increases: Valliere

Breakout

In many ways, the fiscal cliff negotiations are a bit like sudden death overtime, the winner-take-all solution to games that otherwise would end in a tie.

The stakes are heightened, the time frame is shortened, and the countdown clock is ticking. Because of this, the regular game of legislating takes on a whole new set of rules, as well as an increased degree of unpredictability, as lawmakers take their strategizing to a new level. And when the fiscal cliff talks turn to raising taxes, veteran Washington-watcher Greg Valliere says everything is on the table.

"We're in a new era. I think the White House feels emboldened, and they may be overplaying their hand," the chief political strategist at Potomac Research Group says in the attached video. "I think they feel emboldened to raise a wide range of taxes.

That would include the estate tax, he says. Right now, when a person dies, Uncle Sam is entitled to 35% of an estate after an exemption on the the first $5 million of assets. The president has proposed hiking the "death tax," as it is known, to 45% after the first $3.5 million. If no deal is reached, Valliere says, the cliff-prescribed estate tax rates will be 55% after the first $1 million.

"It could go up quite a bit," he says. "It's a real wildcard in these negotiations."

Like many of the tax talks, support and opposition often fall along party lines, while a few untouchable tax deductions (such as the one on mortgage interest) are basically off limits to everyone. What is interesting about the estate tax debate, however, is that during a time when "tax the rich" is the general rallying cry of the president and his party, Valliere points out that many Democrats are ''really leery'' and included in the list of opponents.

"The estate tax has a big impact, not on billionaires, but on farmers and ranchers and people from wealthier states like New York and California," he says.

While everything remains up in the air for now, Valliere's hunch is that the the final deal on capital gains and dividends will see those rates go up to 20% from 15% currently and that the estate tax rate will be maintained as is. We shall see.

One other issue to keep in mind is the law of unintended consequences: Tax policy, 10-year projections and political intentions often don't produce the expected results. As Valliere reminds us, the widely popular ''yacht tax" of the 1990's ended up costing blue-collar boat builders their jobs, rather than relieving wealthy sailors of their money.

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