Wednesday, July 14, 2010

Washington Outlook; TAXES; Immigration; Climate Change

Washington Outlook

· w/health care and now financial regulatory reforom out of the way (a vote on the latter is scheduled in the Senate for Thurs morning), attention in Washington will now turn to the remaining outstanding issues: 1) immigration; 2) climate change; 3) taxes; 4) unemployment extension.  Keep in mind that in just a few months the Nov mid-term campaigning season will kick into full swing, meaning there will be less a desire to do anything controversial between now and Nov (Congress is due to go on recess in early Aug, although some are calling for work to continue until all the legislative issues are out of the way).  How things stand:

1) Immigration - this issue has take on more urgency w/the situation in Arizona (Arizona recently introduced a new law aimed at curbing illegal information but the White House has sued to block the legislation, arguing that it is "inconsistent w/the Constitution"), but is so controversial that action prob. won't be taken in '10.  Sen Majority Leader Reid has said the chances are slim that something happens in this term while the House has said it won't pass a bill until the Senate acts. How things are looking now: no action in '10.

2) Climate Change - this has gained some momentum lately w/the BP/GOM situation, but like immigration it is pretty controversial and prob. won't have enough support to get through in the present term.  The Senate may debate the matter and Senators Kerry + Leiberman (the bill’s main authors/backers) are trying to attach scaled down legislation to a bigger drilling/alt-energy package, but passage of legislation prob. won't happen.  How things are looking now: no action in '10.

3) Taxes - this matter will be forced on the present Congress as the Bush cuts are already scheduled to expire in '11, meaning that unless action is taken, rates will move up across the board in '11.  Obama and Congressional Dem leaders have said they want to cap the current Bush rates for "middle-income" Americans but there are still a lot of uncertainties (i.e. will the current rates be extended in perpetuity?  Will they only be extended for 1-2 years before the matter is taken up later when hopefully the economy is healthier?  Will the upper income rates expire or will they too be extended for 1-2 years given the current sluggish economic environment?  Will the dividend and capital gains rate be capped at 20% as the White House has said?).  Geithner gave an interview on CNBC last week in which he expressed a desire to cap dividend rates at 20% next year (capital gains and dividends are now taxes @ 15% each - starting next year, cap gains are scheduled to go to 20% and dividends to the margin income rate).  How things are looking now: the Bush rates will be extended 1-2 years for "middle income" earnings but will revert to the pre-'03 levels for upper-income brackets (although the upper-income brackets inc. a lot of small businesses, so there is the possibility that the rates are extended 1-2 years for all); dividends will be capped at 20%.  Later in '11 or beyond, comprehensive tax reform will be considered (encompasing corporate rates also).  The House could debate this issue in Jul although the White House has said they don’t think Congress will take up this matter until the fall.

4) Unemployment benefit extension - the Senate held a cloture vote on June 30 and although it failed, two Republicans voted for the extension, meaning passage seems assured in the coming weeks when a Byrd replacement is named.  How things are looking now: Byrd's replacement is named and this bill is passed.

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