Displaying items by tag: taxes

(Washington)

Since May, the prospect of huge tax hikes on the wealthy has weighed over the advisor and HNW landscapes. Biden is planning to significantly increase capital gains taxes, and most alarmingly, is planning to get rid of the step-up in basis at death. With that in mind, a new product has been surging to the forefront as the work-around to Biden’s new proposals: private placement life insurance. PPLI is a type of life insurance where payouts flow through to beneficiaries tax-free. However, they are complex for clients to understand and take some significant diligence. According to a law professor at the University of Chicago, “Private placement life insurance poses a serious obstacle to President Biden’s goal of guaranteeing that high-income individuals pay tax on large gains at least once per lifetime … PPLI is a massive loophole — entirely legal, easy to exploit, and politically very hard to close”.

FINSUM: So this seems to be a good, if complicated and restrictive, work-around to the inheritance tax issue, but it does not address capital gains.

(New York)

Bank of America just put out a big warning that advisors need to pay attention to. The bank is warning that earnings growth could get “vaporized” across a couple of sectors. The reason why is tax hikes. BofA's Savita Subramanian posits that in a scenario where taxes rise to 25% next year (from 21% this year), 5% would be wiped off earnings growth, a huge margin in a year that is already set up to see some cooling after the red hot earnings growth of 2021.

FINSUM: Investors don’t seem to be adequately accounting for this risk. Despite the fact that Biden’s proposals will likely get watered down, there appears a high likelihood that taxes will rise next year.

(New York)

Advisors, try to breathe just a tiny sigh of relief, your clients just got a victory. It is being reported by prominent political paper The Hill that big Washington lobbyists have already succeeded in greatly watering down Biden’s tax plans, and perhaps eliminating their chances. Evidently lobbyists have done very well at getting middle of the road Democrats to turn against Biden’s tax plans. Biden’s plans include increasing long-term capital gains taxes to regular income tax levels and eliminating the “step-up in basis” at death in inheritance.

FINSUM: This has two clear effects on Biden’s plan. Firstly, because the numbers are so tight, Biden can’t afford to lose anyone from his party in a vote. Secondly, and relatedly, this means the middle of the road Democrats have a lot more power to shape the proposal that makes it to a vote.

(Washington)

Advisors and their clients have spent the whole summer dreading Biden’s tax plans. Two of Biden’s budgetary linchpins for raising taxes on the wealthy are: nearly doubled capital gains taxes and the elimination of the step-up in basis in inheritance. Until now, they had merely been proposals. However, yesterday the House Democrats passed a budgetary resolution to bring a full vote on the topic. It is expected to pass along party lines.

FINSUM: The Democrats have a very narrow path to getting this passed as part of their $3.5 tn spending package. However, if they can get every Democrat in the Senate to sign, it becomes a reality.

(Washington)

We will be the first to admit we were wrong (at least partially). When the infrastructure bill passed without any of Biden’s proposed tax increases it seemed like we might be in the clear for the rest of 2021. While this newest “death knell” proposal likely won’t be finalized in calendar year 2021, we definitely spoke too soon. Biden’s new $3.5 spending package includes all the tax proposals advisors dreaded: like higher long-term capital gains taxes and the elimination of basis “step-up” in inheritance. FINSUM: The “death tax” of the elimination in “basis step-up” is very real as it means that unrealized gains accumulated over the course of a lifetime suddenly become taxable to the next generation. Chuck Grassley, US Senator from Iowa, has jut written a very informative piece about this particular tax idea and its damaging legacy in the US heartland. Find that here.