Tax squabbling earns Congress failing grade

NEW YORK (CNNMoney.com) -- If members of Congress were taking a tax policy course, chances are good they'd get an "F."

With 29 days left in the year, Democrats and Republicans are still posturing over the Bush tax cuts, the biggest of the major tax issues they have left to the last minute.

"If I was going to be nice I would give them an incomplete. But that is way too nice," said Rosanne Altshuler, a professor at Rutgers who specializes in the economics of taxation.

Nearly all the big tax issues that were on the docket at the start of the year are still on the docket. That in turn has bred a high level of uncertainty among taxpayers.

The fate of the expiring Bush tax cuts is just the most high-profile item. There's also the fate of the estate tax, a host of "usual suspect" tax breaks like a research and development credit, and a temporary fix to prevent the Alternative Minimum Tax from hitting more than 20 million taxpayers.

On Tuesday, after meeting with President Obama, party leaders said they would try to find common ground on the Bush tax cuts. Those talks got under way almost immediately.

But outside of those negotiations, both parties reverted to form.

Senate Republicans threatened to filibuster every bill until the Bush tax cuts are extended. And House Democrats approved legislationThursday that would extend the tax cuts for the middle class only -- something Republicans oppose because they want the tax cuts extended for high-income households too. The bill is expected to fail in the Senate.

Elevating the public rhetoric on the issue, Republican John Boehner, the House Speaker-elect, called the maneuver "chicken crap."

Meanwhile, the head of the IRS wrote a polite letter to the top tax writers in the House and Senate this week essentially begging them to avoid a predictable mess and not let key tax decisions on the AMT and the package of tax extenders for businesses and individuals get pushed into 2011.

"I want to stress that it would be extremely detrimental to the entire tax filing season and to tens of millions of taxpayers if tax law changes affecting 2010 are deferred and then retroactively enacted in 2011," IRS Commissioner Douglas Shulman wrote.

Clint Stretch, managing principal of tax policy at Deloitte Tax, believes a deal on the AMT and possibly the Bush tax cuts could be reached before anyone rings in the new year.

But Stretch doesn't expect any resolution on the estate tax or even the tax extenders if lawmakers stick to their own rules and try to find ways to pay for the cost of the revenue lost.

Then again, no one can say anything for sure. "I don't think we know," Stretch said. "They're playing a game of chicken. Either somebody blinks or they just run into each other."

Oh, and irony alert: This is all happening the same week that Obama's bipartisan debt commission recommended ways to shave $4 trillion off of deficits in the next decade and to overhaul the tax code.

Yet, both parties were still going to the mat arguing the merits of adding just as much to the deficits by making the Bush tax cuts permanent.

And they're doing so even though Hill observers fully expect the end game will be a temporary extension.

"The fiscal policymaking in this town seems totally schizophrenic right now," deficit hawk Diane Rogers wrote in her blog EconomistMom.com.