Wednesday’s Wisdom: Taxes are coming, taxes are coming?

By Hightower St. Louis on April 8, 2021

During the week of March 14th, the US Treasury distributed 90 million checks to Americans, totaling over $240 billion.¹ More payments are expected to be received on March 24th. US Retail Sales (ex-Autos/Gas) spiked in May 2020 and January 2021 thanks to prior stimulus check disbursements, and one would expect the same this March. Bi-partisan support has steadily waned and the political landscape will be increasingly more complex with the prospect of tax increases on the horizon.

Wealth ≠ Jobs

One stark difference between the 2020 recession and the Great Financial Crisis of 2008-2009 is the difference in wealth creation and the trajectory of job gains. Thanks to strength in home prices, a V-shaped recovery in equity markets, and greater government transfer payments, US Household Net Worth is at an all-time high.²

What Comes Next?

With the $1.9 trillion American Rescue Plan signed into law, the next economic package is not as clear. The Biden administration has several routes they could take. They could seek bi-partisan support on one large infrastructure package, featuring spending and tax increases. They could split up the various proposals: spending in one bill seeking bi-partisan support, and taxation in another bill, to be passed via budget reconciliation. Filibuster reform is a looming threat, which would enable more of the Biden agenda to pass today, at the expense of large policy whipsawing in the future.

Expectations are for the Biden administration to propose a budget in May. The Democrats will debate the budget over the summer months while taking the temperature of Republicans to find any common ground. Given the large range of goals within the Democratic party alone, from the opinions of Sen. Sanders (VT) to those of Sen. Manchin (WV), a unified and clear plan may be difficult to identify.

Key Tax Policy Items

President Biden campaigned on tax increases on the wealthy, with numbers like $1,000,000 and $400,000 as lines in the sand for those who should be taxed more. In December 2020, we hosted a webinar with Cornerstone Macro’s Head of US Policy Research, Andy Laperriere. Many of the key policy items then remain in play today. See below for a short list of the most impactful agenda items to know.

Top Tax Bracket for Individuals

Reverting the top individual tax bracket from 37.0% to 39.6% and push families earning $400,000 or more into a higher tax bracket.

Higher Top Capital Gains Rate

For families earning over $1,000,000, increase the capital gains rate to ~28%. Taxation of unrealized capital gains is sought after by more progressive Democrats but considered unlikely.

Estate Tax Reform

Reduce exemption to 2009 parameters ($3.5mm/$7mm single/joint) and raise estate tax rate back to 45%. A shift from step-up in basis at death to carryover basis has also been discussed.

Corporate Tax Rate

Increase corporate tax rate towards 28%. Potential to be phased-in over time and ultimately lower than the 28% on which Biden campaigned but higher than today’s 21% rate.

Tax on Corporate Foreign Income

Higher taxation on foreign income, targeting multi-national corporations who can shift profits to non-US entities. Creation of a minimum tax on book income has also been contemplated.

Stephanie Link: CNBC TV Schedule

Disclosures

Investment Solutions at Hightower Advisors is a team of investment professionals registered with Hightower Securities, LLC, member FINRA/SIPC, & Hightower Advisors, LLC a registered investment advisor with the SEC. All securities are offered through Hightower Securities, LLC and advisory services are offered through Hightower Advisors, LLC. This is not an offer to buy or sell securities. No investment process is free of risk and there is no guarantee that the investment process described herein will be profitable. Investors may lose all of their investments. Past performance is not indicative of current or future performance and is not a guarantee. In preparing these materials, we have relied upon and assumed without independent verification, the accuracy and completeness of all information available from public and internal sources; as such, neither the information nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Hightower shall not in any way be liable for claims and make no expressed or implied representations or warranties as to their accuracy or completeness or for statements or errors contained in or omissions from them. This document was created for informational purposes only; the opinions expressed are solely those of the author, and do not represent those of Hightower Advisors, LLC or any of its affiliates.

Securities offered through Hightower Securities, LLC member FINRA/SIPC. Hightower Advisors, LLC is a SEC registered investment advisor. This document was created for informational purposes only; the opinions expressed are solely those of the author, and do not represent those of Hightower Advisors, LLC or any of its affiliates.

Sources:

1. CBS News, “IRS says more stimulus checks will land on March 24”, March 23, 2021.
2. (US Household Net Worth & US Nonfarm Payrolls): Bloomberg.

Hightower Advisors does not provide tax or legal advice. This material was not intended or written to be used or presented to any person or entity as tax advice and information, or legal advice and information. Tax laws vary based on the client’s individual circumstances and can change at any time without notice. You are urged to consult your tax and legal advisor before taking any action.

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