The Spooky New Tax Proposal

0

The House of Representatives is putting forth a new tax plan that will likely increase taxes on both corporations as well as higher-income earners. An article on Rueters.com1 states the current proposal is to increase corporate tax rates from 21% to 26.5%, and to increase the highest personal tax bracket from 37% to 39.6%. It would also increase the Capital Gains Tax for single filers making above $400,000 and joint filers making above $450,000 from 20% to 25%. Luckily (for the time being), it looks like the step-up in cost basis to the owner’s date of death will remain in place. It also appears that the Estate Tax will likely stay intact at $11.7 million, which can be doubled through some moderately advanced estate planning.

The tax proposal does not talk much about raising taxes on the majority of people who earn less than $400,000, but the final bill that Congress will vote on is far from finished. My guess is that they will try to get this new “Reconciliation” tax increase done by the end of 2021, so that the increases will be in place by 2022, and will also give the people who vote for it some distance between the passing of this legislation and the 2022 mid-term elections.

I completely understand the need to pay for some of the recent programs that Washington has passed to try to keep our national debt from running away on us. I believe that tax increases, in the face of a very questionable economic growth environment, could lead to another round of layoffs and/or pay cuts. In a time when we have a couple hundred thousand vehicles sitting in fields all over Flint and Detroit due to chip shortages and a very questionable supply chain, it feels like the failure of previous legislation has led us to a place of extreme uncertainty, to say the least.

One argument for the tax increases is that, as AOC recently wore a dress emblazoned with “Tax the Rich” to the $30,000 a ticket Met Gala (the irony is not lost on me), would be that the majority of those who benefited from COVID Relief bills and the stimulus packages of 2020 were people who owned things. And this benefit was exponentially more than those who couldn’t afford to own things. The owners of stocks, bonds, businesses, real estate, bitcoin and gold have all benefited from the massive amounts of money printing. In fact, according to a graph from the Federal Reserve Bank of St. Louis, just over 35% of all the American dollars ever printed by the U.S. government had been printed during 2020. Think about that. Since 1776, 35% of all money-printing was done in a ten-month period between February and December! 2

Truth and time will tell if this strategic “taxing of the rich’’ leads to paying down of our current debt mess, or if it leads to more poverty in America started by a self-fulfilling prophecy of corporate layoffs, leading to slowing economic growth and some air being let out of the inflated asset balloon.

I think now more than ever, a meeting with your financial advisor to evaluate your risk exposure in both the stock and bond markets will be essential to your financial and mental health over the next year. If you don’t have a financial advisor, the team at OLV Investment Group would be happy to have a free consultation with you.

Happy Halloween! Hopefully, the season won’t be too spooky …

 

Share.

Leave A Reply