The Washington Update from Andy Friedman

The Upcoming Debt Limit Debate:
What Tax and Entitlement Changes are in Store?

The United States government has once again hit its borrowing limit.  The government was permitted to borrow only through May 18, after which it can continue to operate without additional borrowing for about four months.  Sometime this fall, Congress will have to raise the debt limit to prevent the United States defaulting on outstanding debt.  The Republicans are demanding changes to entitlement programs – Social Security and Medicare – as a quid pro quo for their approval to raise the borrowing limit.  President Obama has provisionally accepted these changes, if the Republicans agree to new taxes.  The President has proposed a number of tax changes he wants to see enacted.  This white paper discusses the proposed entitlement changes, provides a detailed analysis of the proposed tax changes, and predicts the likelihood of the eventual Congressional passage of each.   Read more...

Congress Avoids a Government Shutdown; Up Next, the Debt Limit

Congress has cleared another hurdle, passing a bill to keep the federal government operating for six months past its current funding deadline of
March 27. The bill also eliminates some of the draconian effects of the “sequestration” spending cuts that began on March 1. Now Congress turns to the need to raise the debt ceiling to permit the country to continue to borrow. This paper discusses the budget proposals put forth by the two parties and the likely effects on the markets of the upcoming debt ceiling debate.  Read more...

Combining Trusts and Life Insurance to Avoid Tax In the Wake of the Fiscal Cliff Compromise

To minimize estate taxes, investors often transfer assets to an irrevocable trust.  Assets transferred grow outside of the donor’s taxable estate, and thus pass to heirs entirely free of estate tax.  But investment earnings in an irrevocable trust are subject to income tax at the highest tax rate.  And that maximum tax rate has risen substantially in the wake of the compromise reached last December to avoid the “fiscal cliff”.  This white paper discusses how investors may reduce income taxes imposed on an irrevocable trust while still using the trust to reduce estate and gift taxes due.  Read more...

The Sequester Cuts Take Effect: Now What Happens?

Congress has permitted the government spending cuts, known as the sequester, to begin on March 1. But Congress faces other deadlines that could affect the implementation of those cuts. This paper discusses the background of the sequester cuts, their implementation, and how Congress is likely to handle the other approaching deadlines.  Read more...

Behind the Fiscal Cliff Compromise

This paper summarizes the elements of the fiscal cliff compromise reached on New Year’s Eve, and discusses how the compromise affects future income tax rates and wealth transfer.  Read more...

Still Poised on a Cliff: Wealth Transfer Opportunities after the Fiscal Cliff Compromise

At the eleventh hour on New Year’s Eve, Washington negotiators reached a compromise to avoid the “fiscal cliff” – the looming combination of tax increases and spending cuts that threatened to throw the country back into recession.  The fiscal cliff compromise included a number of favorable estate and gift tax provisions.  However, the compromise also left Congress with a short-term need to address other deadlines and a lingering desire to enact comprehensive tax reform.  Addressing those matters is likely to lead to further wealth transfer tax changes, some of which might restrict current gifting techniques.  This white paper discusses the elements of the compromise, estate and gift tax changes that might be upcoming, and how individuals can begin to plan in light of these developments.  Read more...

Still Poised On a Cliff: The Prognosis for 2013 Congressional Action and its Effect on Investors

At the eleventh hour on New Year’s Eve, Washington negotiators reached a compromise to avoid the “fiscal cliff” – the looming combination of tax increases and spending cuts that threatened to throw the country back into recession. However, the compromise left the country with a series of new short-term deadlines that compel Congressional action, action expected to involve more tax changes likely to affect many Americans. This white paper sets out the details of the fiscal cliff compromise, discusses what we might expect from Washington as 2013 begins, and provides some steps for investors to consider in light of the changing tax landscape.  Read more...

The Election Ends and the Lame Duck Begins

Billions of dollars spent, thousands of negative advertisements aired, scalding campaign rhetoric, a bitterly polarized electorate -- and we ended up where we started: President Obama in the White House, a Democratic-led Senate, and a Republican-led House of Representatives. Four more years of the same divided government. What does the election portend for the "fiscal cliff" deliberations in the lame duck Congress and the prospects for comprehensive entitlement and tax reform in 2013?  Read more...

Congress Adjourns Until November:
Election and Lame Duck Session Update

As expected, Congress has now adjourned until after the election without addressing the looming “fiscal cliff” caused by spending cuts and tax increases scheduled to take effect at the end of the year. This paper discusses the upcoming presidential election and the actions Congress is likely to take (or not take) to address the fiscal cliff in a post-election "lame duck" session.  Read more...

Investing in a Rising Tax Environment:
The Roth Conversion Opportunity

Tax rates are likely to rise at year end as Washington considers whether to permit some or all of the Bush tax cuts to expire. On the other hand, tax reform efforts in 2013 could reduce rates. Fluctuating tax rates provide an interesting arbitrage opportunity for Roth IRA conversions in 2012. Investors who expect to remain in the same tax bracket in retirement might wish to convert their IRA to a Roth IRA this year, so that they can receive future earnings tax-free. If tax rates then fall next year, they can act before October 2013 to re-convert back to the traditional IRA. This white paper discusses the rules governing Roth IRA conversions (and re-conversions) and identifies the types of investors who might be well-advised to pursue this strategy.  Read more...

The Supreme Court Rules on Health Care Reform:
What It Means For Investors

The Supreme Court's decision upholding the individual mandate has implications for investors, not least of which is the assurance that next year taxes will rise.  Read more...

What is the "Fiscal Cliff"?

The “fiscal cliff” refers to the abrupt slowdown in the economy that could occur in 2013 if taxes rise and government spending falls as currently scheduled. The full brunt of the fiscal cliff threatens to throw the economy back into recession for at least the first half of 2013. This white paper analyzes the components of the fiscal cliff and discusses the likelihood Congress will address them before year-end.  Read more...

The President’s Fiscal Blueprint for a Second Term
and The Timing of Tax Changes

This legislative update discusses President Obama’s 2012 budget plan, which likely will serve as a blueprint for his fiscal and tax policies if he is elected to a second term. The update also discusses the extension of the payroll tax cut through 2012, and the likely outcome of Congress’ deliberations over the extension of the Bush tax cuts scheduled to expire at year-end.  Read more...

A Unique Opportunity to Transfer Wealth Without Tax:Combining Trusts, Life Insurance, and Annuities

Investors have an unprecedented opportunity to transfer wealth to future generations free of gift and estate taxes, provided they act before the end of 2012. By using a trust and taking advantage of unusual investment opportunities, the gifted assets can grow free of income taxes as well as estate taxes, providing an even greater legacy for heirs in future years. This white paper explains how investors can take advantage of this new opportunity.  Read more...

Investing in a Rising Tax Environment 2012

The Bush tax cuts are slated to expire at the end of 2012 and it is quite unclear Congress and the Administration will agree to extend them -- at least for affluent families -- in this election year. This white paper reviews strategies investors and advisors can consider now that may blunt the effects of future tax increases.
Read more...

Preparing for a Secure Retirement: The 401(k) Rollover

Recent years have seen a decline in retirement asset values, the elimination of many corporate pension plans, and threats to the long-term viability of the Social Security system.  Now more than ever it is important that retirement assets be invested wisely in vehicles that can produce a reliable income stream, have the potential for appreciation, and can lower downside risk.  Unfortunately, 401(k) plans may not offer the sort of sophisticated investment choices that can best achieve these results.  This white paper discusses how investors may take control of their retirements by moving their 401(k) assets to IRAs that provide a broader array of investment choices, and in what circumstances they are well-advised to do so.  Read more...

The “Super Committee” Fails: What Happens Now?

The Congressional “Super Committee” failed to agree on a deficit reduction plan before its November 23 deadline. The Committee’s failure triggers a process called “sequestration,” under which automatic spending cuts of $1.2 trillion are implemented over ten years beginning in 2013.  The failure also will lead to a string of legislative decisions -- most crucially involving taxes -- that must be made in the coming year.  Read more...

Investment Opportunities and The High Federal Budget Deficit

The federal budget deficit is projected to reach a new high in 2011, exceeding even the record deficits of recent years. The high deficit may portend ominous consequences for the economy and the government’s ability to continue to function in its present state. But it also provides opportunities for investors. This white paper describes the extent to which Washington is likely to address the federal budget deficit and how investors can profit from -- or at least blunt the negative effects of -- the current fiscal situation.  Read more...