THE FISCAL CLIFF -- WAG
It’s a wild-ass guess, but I suspect Republicans will make a last-minute deal on the fiscal cliff, agreeing to let the Bush income-tax cuts expire in exchange for extending the 15% tax rate on dividends and capital gains, using the rationale that such tax breaks stimulate investment and jobs. They will argue further that a significant portion of stocks offering dividends and capital gains are held within tax-deferred qualified plans, and, therefore, the revenue gains from boosting the rate on such transactions is “minimal.”
In reality, the 15% rate on qualified dividends and capital gains is very important to the Republican base, inasmuch as stocks are where the fortunes accumulated as a result of Reagan’s income-tax rate reductions now reside, providing the base with its main source of income (witness Romney’s 14% tax rate). Consequently, faced with the prospect of seeing the restoration of pre-Bush tax rates on both income and cap gains/dividends if we go over the fiscal cliff, the base will be inclined to give up the former in order to protect the latter.
Stay tuned.
Coming soon: Second edition of my book, The Predicament (www.the-predicament.com)