2021 & Your Financial Future

January 30, 2021

Elections Have Consequences…

It’s finally over.  Or is it? The seemingly endless Election of 2020 has finally come to close, with the Democrats winning both Senate seats in the Georgia run-off.  As a result, newly elected President Biden will have a slender majority in both the House of Representatives and the US Senate.

Now, what does that mean for your money and financial future?  The bottom line is that it will be hard for the Democrats to make major policy changes, as those require 60 votes in the senate. However, we do expect some significant changes.

Let’s talk about taxes and what we see happening this year, and then we will discuss the financial markets and outlook.

First, we expect certain rates on Taxes to be increased based on campaign promises.  The first rate hike will be on top earners raising the top marginal rate back to 39.6% from 37%.  (For individuals making more than $523K/year and Married couples making more than $628K).

Next, we expect the corporate tax rate to be lifted to 28% from 21%.  Neither of these moves will help an economy grow, but from 1993-2000 and 2013-2017 we had a corporate rate of 35% and did not experience a recession.

We expect the State and Local tax (SALT) deduction to increase from $10.000 to $20,000.  After that, it gets a little tricky.  Look for a battle to eliminate the Step-up basis at death on inherited assets.  CPA’s and tax accountants will be the biggest opponent of this as trying to find what parents and grandparents originally paid for an asset would be an administrative nightmare.  Look for a compromise of a lowered estate tax exemption on assets passed to their heirs from $11.6 million to around $6-7M.  Capital gains (long term) tax rates will also be in the crosshairs as the campaign proposed treating gains and dividends as ordinary income for those earning more than $1 million.  Again, slender majorities will prevent this but we expect a hike from 20% to 24%, closer to the rates in the Reagan administration, when he left office.

The big question is, when will these new tax changes be put in place?  Due to unemployment rates still being high, and the recovery still slowed by COVID-19, we think these policies will not be active until 2022 or even 2023.  We think tax hikes will slow the economy and could prove to be big political hurdles for some members of congress.  Remember, their only real job is to get re-elected.

As for the economy and the stock market, we are still optimistic.  We have allowed politics to dominate our minds and opinions about the market.  If our party (Republicans or Democrats) are in power, we are bullish (positive growth).  If the other party is in power, we assume the world is coming to an end.  That is the wrong way to look at capital markets.  The markets and business have become more efficient and technology has seen 8 years of growth in 8 months of a pandemic.  What does this mean?  It means companies are able to reduce costs and improve productivity which results in higher profits.

With interest rates extremely low and not projected to move for some time, restructuring of debt and borrowing has allowed companies to grow and stay afloat.  We also expect another stimulus package (Between $1-2T dollars) which will increase both spending and our money supply.  Our model still shows the S&P Index undervalued with plenty of room to move up.  This does not guaranty a smooth steady climb.  There are headwinds with some of Biden’s promises and objectives.  But, with that, there are also opportunities.  Some industries may be more attractive (Clean Energy, Infrastructure, Materials, Healthcare/Biotech), while others may not be as positive (Big Tech, Oil/Gas).

This is a great opportunity to discuss your current portfolio and review your financial plan.  It is not a time to panic or assume all is lost.  This country has always come out on top and we can survive and thrive in the same way or new and different ways.

Feel free to contact me with any questions, thoughts and concerns.  We are in this together.

Jeff

Jeffrey A Rittner, CFP®
Certified Financial Planner™
Legacy Financial, LLC
(970) 416-0088 – Office
(970) 232-5823 – Cell
jrittner@cfiemail.com

www.legacyfinancialcolorado.com

125 South Howes St. | Ste. 910 | Fort Collins, Colorado 80521 | Office: 970.416.0088 | Fax 970.416.0087 | www.legacyfinancialcolorado.com

Jeffrey Rittner, CFP® is a Registered Representative / Advisory Associate offering securities and advisory services through Centaurus Financial, Inc. member FINRA/SIPC, and an Investment Advisor Representative, Legacy Financial and Centaurus Financial, Inc. are not affiliated.