Displaying items by tag: capital gains
Any advisor paying attention to President Biden’s new proposals has surely been aware…see the full story on our partner Magnifi’s site
A lot of attention in the wealth management industry has been paid to President Biden’s efforts to raise taxes…see the full story on our partner Magnifi’s site
The last couple of months has been very tense for advisors. Not only have discussions around a renewed version of the DOL rule been swirling, but highly significant tax hikes are pending. Biden is planning a huge multi-trillion Dollar increase in spending, which means tax hikes are almost a certainly. And none of them is more worrying than the hike on long-term capital gains taxes, which Biden wants to push up to 43.4% vs 23.8% now. That is scary in itself, but here is the truly worrying part: experts think it will take effect May 27th (next Thursday). This would be simultaneous to his announcement of his full budget.
FINSUM: Evidently Biden doesn’t want to give advisors and accountants time to game plan around his changes, so he wants them to go into effect immediately upon release of the budget (and they could even be retroactive).
Advisors need to start thinking about what the post-election tax landscape might look like for clients, especially high earners. The proposed Biden/Democratic tax package is even more stringent than many think, as when you diver deeper it becomes clear that the increases are quite extensive. One core element that is less understood is Biden’s Social Security Payroll tax of 12.4%, which applies to all income with no cap (all income between $137,000 and $400,000 would be taxed at the same level). Combining that with a raised federal tax rate of 39.6%, and state taxes means that some residents of high tax states could see punitive-levels. For example, in California, which has a 13.3% top tax rate, the total tax burden for high earners would be over 65%! Even in states without state taxes, income taxes could be 52%. Furthermore, Biden intends to eliminate capital gains tax rates for those who earn more than $1m, effectively doubling the capital gains tax rate.
FINSUM: There is good news and bad news here. The bad news is obvious. The good news is that because of the state of the economy and the need for fiscal stimulus, Democrats are unlikely to pass these measure until we re-reach full employment, which could be years.
President Trump threw out an idea for a tax cut this week, then immediately backtracked by calling it unnecessary. The idea, however, appears sound. Trump proposed a payroll tax cut that would primarily help middle and lower class workers (in addition to a capital gains tax cut via indexing to inflation). That would make a lot of sense right now, as it would increase the spending power of the masses, increasing consumption and inflation, and lowering un-utilized manufacturing capacity.
FINSUM: We really like this idea of a payroll tax cut because it would help reverse some of the adverse affects of the wealth inequality that has built up since the Crisis. The more capital is concentrated in a small pool the less of it gets spent (i.e. a single person can only spend so much), which slows the economy. If you increase the spending power of the majority of Americans a lot more will get spent, boosting the economy.