Obama May Not Get His Way on Tax Policy

Despite President Obama’s victory in the elections this week, he faces a tough road in convincing Republicans in Congress to go along with his tax reforms.

Speaker of the House John Boehner, R-Ohio, who was also re-elected Tuesday to lead a Republican-dominated House, appeared to indicate some flexibility on taxes during a news conference Wednesday in which he said, “We’re willing to accept new revenues under the right conditions.”

However, in an interview with Diane Sawyer of ABC News on Thursday, he reiterated his tough stance against Obama’s proposal to raise taxes on incomes of over $250,000 a year. “I’ve made it clear to the President and I think I laid out yesterday that raising taxes on small business people is the wrong prescription, given where our economy is,” he said. “Because when you look at the President’s proposal, half of the people would get hit with higher taxes who file their taxes as individuals, business taxes… I made it clear yesterday that raising tax rates is unacceptable. Frankly, it couldn’t even pass the House. I’m not sure it could pass the Senate. So the votes aren’t there. What I did yesterday was lay out a reasonable, responsible way forward to avoid the fiscal cliff, and that’s through putting increased revenues on the table, but through reforming our Tax Code.” However, Boehner added that he and Obama had conversations and he believes they can find “common ground.”

Some observers believe it will be difficult for Obama to get his way on tax policy. “From our perspective, the more you increase the rates, the more desirable it becomes to take advantage of this gap between the taxes and the books,” said G2 FinTech CEO George Michaels, whose company develops software to help taxpayers identify tax liabilities that crop up because of certain securities transactions in their investment portfolios. “If Obama accomplishes what he wants to accomplish, there won’t be many rule changes but rate changes. Looking very closely at what Obama says, there are some things he has suggested that are not likely to go through. He wants to create a second AMT system, an AMT 2, to make sure everybody pays at least a 30 percent income tax, but that is not what Warren Buffett had suggested, and it’s not likely to go through.”

Michaels believes that Obama will need to compromise with the Republican leadership in Congress to solve the problem of the so-called fiscal cliff.

“Both sides won’t get their way without a compromise,” Michaels pointed out. He suggested that there should be a short-term extension of the current tax rates for another year while the two sides work on reaching the so-called “grand bargain.” Michaels suggests that while it may be difficult to raise tax rates on ordinary income, it would be more acceptable to many Republicans to allow taxes to go up on capital gains and dividends for the sake of deficit reduction.

“In 2013 they will move on to the big compromise,” Michaels predicted. “It is achievable because the President can’t run again for re-election. Since Obama isn’t looking to be re-elected, he can afford to move to the center.”