The Tax “Tail” Proposals Currently on the Table
Repeal 2017 Trump tax cuts
Incomes above $400K – The top tax bracket goes from 37.0% → 39.6%
Capital gains rate
Tax investment income at ordinary rates for those who earn more than $1 million in total (wage and investment) income.
Current top rate with surtax and ex state tax 23.8% → 43.4%.
Estate tax changes
Trump exemptions eliminated and exemption returns to 2009 levels.
Payroll tax
Limited deductions
Financial transaction tax
Raising the GILTI tax
Raising the corporate tax rate
21% to 28%
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Taxes are likely to change meaningfully especially for our higher net worth clients. We try to skate to where the puck is headed, not where it is. There are many investors who have resisted paying capital gains taxes and understandably so. It may make sense to avoid gains if you anticipate your heirs receiving a step up in basis upon transfer. And for some, paying taxes on passive income is just antithetical given the mostly unabated decade long advance in U.S. markets. The result of any tax deferment strategy, however, may result in some investors drifting from their preferred risk parameters – in some cases significantly. These investors can end up with excess exposure to parts of the market that have outperformed, in turn possibly making portfolios riskier than what they originally intended.