Simply put, the House will go to a Republican majority. The Senate is likely to maintain in Democratic hands, though by a small margin (say 51/49, with independents caucusing Democratic).
Meanwhile, there will be a lame-duck House and Senate sessions. The biggest item this Congress will face is expiring tax cuts. There are two ways this can go. 1) A compromise is reached before year-end where cuts under a certain number (say $400,000) are retained. 2) No compromised is reached and the tax cuts sunset. Forced to bet, I’d predict option #2 happens. If this occurs, this sets up an interesting 2011 where the President’s veto pen and the Senate are the checks against a strong Republican push to retain the Bush tax cuts.
In 2011 the status of income taxes, inheritance taxes, dividend taxes, and capital gains taxes is up for vote. The strong Republican shift in the House will put more attention on these issues in 2011. The minority status of Republicans in the Senate will make it challenging for Republicans to put significant changes on President Obama’s desk. The biggest wildcard will be how President Obama will deal with this dramatically changed legislature.
In summary, I predict that the next 2 years will be marked by gridlock on many fronts. I predict that the Bush personal income taxes will be retained for those with incomes $200-250K or less… I’ll hazard that even up to cuts for this with incomes up to $500K will be retained. The fate of dividend tax cuts it less certain. I suspect that the 15% rate will be retained for those with incomes up to $500K. I suspect that capital gain rates will lapse to the higher pre-Bush levels. These are my best guesses.