While this was a divisive election with high emotions on both sides, it is important to realize that historically the party in the White House has had little effect on the performance of the stock market over the last century. External events like wars, economic slumps and, now, a pandemic have been more important to overall market performance. We suggest that long-term investors fight the urge to take too cautious an investment stance out of fear of prospective tax changes. Looking ahead, anticipated tax hikes will likely occur as COVID vaccines become widely disseminated and the country starts to open up after more than a year of “lock down,” events that should be supportive to the economy and financial markets.
The Biden Tax Plan, which we explain in detail below, is almost certainly going to undergo major modifications before it becomes law. There are major and unpredictable differences between what candidates propose in the heat of the campaign and what eventually becomes law after Congress gets ahold of it. Importantly, the narrow majorities Democrats hold in both the House and Senate will probably mean that any tax law changes will have to pass muster with moderate Democrats from conservative states, and will disappoint the more progressive wing of the party. Therefore, we believe the changes will be in line with tax changes passed in both the Obama and Clinton administrations. It is worth noting that the stock market rose in both of the years those tax increases were passed. The Biden Plan, even if passed in its current form, would not affect all investors. Capital gains would rise only for those making over $1 million a year and income tax rates would rise only on marginal income over $400,000. This plan is designed to raise revenue primarily from those households in highest tax bracket. If you are in that group, the advice below may become even more important.
Biden Tax Proposals
Tax policy has been a major topic throughout Joe Biden’s campaign. He has proposed tax increases for corporations and high-income households to help pay for his climate, infrastructure, R&D, health, and education plans. Some of the key elements of his proposals are summarized as follows:
The uncertainty of future tax law is causing a lot of anxiety for high earners. With that in mind, it is a great time to consider planning strategies to mitigate the impact of Biden’s proposed tax increases. Once Congress passes any proposed legislation, we will have a much clearer picture of how Biden’s proposals will impact high earners.
Biden’s Impact on Estate Planning
Though President-Elect Biden has provided limited specific information on proposed changes to the federal estate and gift tax exemptions and taxation of assets following death, his goal in this area is clear: to provide more tax revenue for the government. As a result, there may be a limited amount of time for families to review and modify their estate plan to take advantage of the current favorable tax environment.
Key Takeaways of the Biden Tax Plan for Federal Estate and Gift Tax
Estate Planning Considerations and Strategies for High Earners
When you develop a long-term investment plan with your MAI Advisor, it is designed to further your financial and life goals over the long-term and not be greatly impacted by short-term events. We encourage you to work closely with your Advisor and discuss the election’s implications on your plan and how you can find opportunity moving ahead. Please don’t hesitate to reach out to your MAI Advisor if you would like to discuss the concerns or potential opportunities discussed above.
Source: Tax Foundation, Fiscal Fact No. 730, October 2020; Details and Analysis of President-elect Joe Biden’s Tax Proposals, October 2020 Update and Financial Planning, What is the Biden Tax Plan? October 21, 2020
Please send your questions, comments and feedback to: firstname.lastname@example.org. The opinions and analyses expressed herein are subject to change at any time. Any suggestions contained herein are general, and do not take into account an individual’s or entity’s specific circumstances or applicable governing law, which may vary from jurisdiction to jurisdiction and be subject to change. Distribution hereof does not constitute legal, tax, accounting, investment or other professional advice. Recipients should consult their professional advisors prior to acting on the information set forth herein. In accordance with certain Treasury Regulations, we inform you that any federal tax conclusions set forth in this communication, were not intended or written to be used, and cannot be used by any taxpayer, for the purposes of avoiding penalties that may be imposed by the Internal Revenue Service.
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