News on Future Capital Gains Tax Possibilities

Found this on the Washington Wire Today. Who knows exactly what is coming down the pike!

By John D. McKinnon
Treasury Secretary Tim Geithner offered a glimmer of hope to investors who are facing huge tax increases on capital gains and dividends next January.

In a CNBC interview late Wednesday, Geithner said the Obama administration still hopes to hold the top tax rate on both capital gains and dividends to 20% next year – the level the White House has been proposing since taking office.

Of course, a 20% rate would represent a big increase over the current 15%. But it’s a lot better than the 39.6% top rate for dividends that congressional Democrats have signaled they were planning next year for higher earners.

“This is good news for people who worry about dividends, because it reinforces the administration’s commitment to 20%,” said Clint Stretch of Deloitte Tax LLP.
The tax changes are happening as the Bush-era tax cuts expire at the end of this year.

Congress currently is planning to extend most of the Bush breaks – particularly those for middle-income earners – for some period, perhaps only a year or two. But budget rules that lawmakers passed earlier this year anticipated the Bush-era breaks for higher income earners would expire immediately. That would mean the tax on dividends for higher earners would return to the pre-Bush ordinary income rate. That rate is expected to rise to 39.6% next year.

However, there are growing worries among Democrats that their plans to allow taxes to rise substantially for higher earners will create drag on the recovery, and particularly on financial markets. That appears to be opening the possibility that some of their severest tax increases will be put off, at least for a bit longer.
“There’s…real concern about what would happen in the markets” if dividend rates went as high as 39.6%,” Stretch said. Given the fragile state of the economy, lawmakers “are not in the mood to experiment with the markets.”

Ironically, another factor working in favor of higher earners is the growing public concern over deficits. That’s leading Democrats to consider the short-term extension of the Bush-era breaks for the middle class, instead of the permanent extension that everyone was discussing a year ago. If the middle-class breaks are extended for only a year or two, that could make room for higher earners to catch a few breaks, too.