Infrastructure and Taxes

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Bipartisanship has been a stated and restated goal for President Biden. This past week, Republicans have offered a package focusing on traditional infrastructure projects and finances the improvement with fees on users like an increased gas tax hike. Biden will be meeting with Republicans to see if there is any room to work. Is it possible to pass a bipartisan traditional infrastructure plan and then a subsequently expanded infrastructure plan focused on human infrastructure to address challenges such as caregiving, public preschool, and free community college that could be passed by the reconciliation process?

President Biden just finished a speech in VA emphasizing that tax increases would only focus on wealthier Americans, families with taxable income in excess of $400k, and capital gains becoming ordinary income for families with income in excess of $1M. Americans generally are in favor of an increase in taxes for wealthier Americans according to consistent polling. Republicans seem to draw the line for all infrastructure with no tax increases.



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Taxation and Effect on the Markets

Conventional wisdom says tax increases, both individual and corporate, are bad for the stock market. Recent strong market performance indicates that proposed tax increases will have minimal impact on market prices-at least so far. Facts are important in this regard. Over 50% of stock assets in the US are invested in retirement accounts where capital gains are a non-event. (Capital gains only affect “taxable accounts”- such as brokerage accounts, brokerage trust accounts, checking, and savings accounts. Retirement plan accounts both employer-sponsored and individual accounts (IRAs) are not impacted by capital gains taxes). In addition, earnings and economic growth are much larger factors in market behavior than tax policy.

“Any potential equity selling will be short-lived and reversed in subsequent quarters,” Goldman Sachs analysts wrote late last year about the prospect of a capital gains tax increase under Democratic control in Washington.

In 2013, when the tax rose to the current 23.8 percent, from 15 percent, on Americans with the highest incomes, the S&P 500 climbed nearly 30 percent. It was the best year for stocks in the last two decades. And after the top rate rose to 28 percent, from 20 percent, at the end of 1986, the market continued to roar higher, by nearly 40 percent through most of 1987.-NY Times May 3, 2021

Currently, both sides seem to be digging in with Republicans refusing to agree to tax hikes and Democrats insisting on an increase in both corporate, individual, and capital gains tax rates. Also included in potential tax increases are changes to the estate tax rules including a limit on step-up in cost basis. We are paying close attention to potential changes and will recommend adjustments to strategies as we have more visibility and legislation is passed.


Mother’s Day

It’s Mother’s Day this weekend, and though I’m a bigger fan of celebrating each other all year round, holidays such as these are a helpful reminder to make time for family and cherish time together. As work-life has bled a bit more into home life (thanks shelter in place) the holiday is a reminder to stand our ground and hold a place for balance. 


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