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Tax VOX

2011 predictions: Chest thumping but no action on taxes, spending, deficit

2011 predictions from tax policy experts at TaxVox include lots of chest thumping and growling from Washington, but no substantive legislation.

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The deficit: Despite these modest spending cuts, the annual budget shortfall is likely to improve as the economy strengthens. Revenues will rise and some anti-recessionary spending will fall, or at least grow more slowly. With luck, the deficit may shrink back to the neighborhood of $1 trillion, and both Obama and Republicans will take credit. But don’t expect much in the way of structural deficit reduction.

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Health Reform: It will be classic Washington drama. House Republicans will make a great show next week of voting to repeal “Obamacare. ” The president will put on an equally dramatic performance trying to preserve it. The public and media will be mesmerized by the theatrics but the players already know how the third act ends. The bill dies in the Senate, and the fate of the health law is decided in 2012 by the Supreme Court.

California: Watch the return of Governor Jerry Brown. Once derided as Governor Moonbeam, Brown faces a massive budget shortfall and seemingly intractable institutional opposition to doing anything about it. But he may surprise us all.

Energy: Cap and trade, carbon taxes, and other proposals to reduce demand for fossil fuels by raising prices are so 2009. On the other hand, Obama and Congress may agree on new subsidies to encourage the use of natural gas and alternative energy sources. Since new spending is passe, the subsidies are likely to find their way into the tax code. Still, nothing builds consensus like giving away more money.

In all, 2011 will be a year of much talk and little action—all aimed at setting the stage for the 2012 elections

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