Politics and Finance: Planning for Public Policy
The election season has concluded, and we find ourselves with a Democratic president and Democratic majorities in both houses of Congress. This change could have far-reaching effects on many aspects of our lives including a number of financial issues. What actually comes out of having the Democrats in control of these two branches of government, of course, remains to be seen. Impact on the Economy and Investors Some think that President Biden’s stimulus proposal will have a positive impact on the economy and on the stock market. Some experts point to these proposals as a factor in the strength of the stock market in January. The Biden economic plan could have an impact on a number of industry sectors, one sector of note is the energy sector. We’ve already seen a shift from big tech stocks towards cyclicals and value stocks in anticipation of the Biden agenda. One area of concern is the potential impact these stimulus plans might have on inflation and interest rates. The threat of inflation could put a damper on the economy as could the prospect of higher interest rates. Both of these issues would likely have a negative impact for investors. Consumer Protection Many think the Biden agenda will focus on consumer protections in sectors like banking, credit and others. He is thought to be considering a number of banking reforms, including tougher enforcement of fair-lending requirements. Overall, these types of protections, as well as others across different industry sectors, are largely a positive for consumers. Climate Change and the Environment Shortly after taking office, President Biden rejoined the Paris Agreement on climate change that the United States had withdrawn from under the Trump administration. Additionally, he signed three executive orders aimed at curbing climate change within his first week in office. He seems committed to restoring trust among other countries in the United States’ commitment toward combating the impacts of climate change. Taxes The Biden agenda contains a number of potential tax changes. Higher Taxes for Wealthy Americans He is looking to raise taxes on those earning $400,000 or more. This might include raising the top tax rate to its former 39.6% level from the current 37%. He is also said to be considering adding a Social Security tax for those earning $400,000 or more. There has also been talk of eliminating the preferential rate for long-term capital gains for those earning $1 million or more. This would entail taxing those gains as ordinary income at rates as high as 39.6% versus the current top capital gains tax rate of 23.8%. Some think this might cause a temporary runup in stocks as wealthy investors scramble to sell appreciated securities in advance of these higher rates. Tax Breaks for Families and the Middle Class Biden’s tax plan would increase the child tax credit for 2021 and beyond if needed. The plan also includes a credit for childcare expenses for families. His plan would increase student loan forgiveness and would exclude the forgiven amounts from being taxed. Overall, the Biden tax plan is aimed at increasing taxes on wealthier taxpayers and corporations, while providing relief to the middle class and those at lower income levels. Stimulus and Relief Packages President Biden has proposed providing an extra $1,400 in stimulus relief to individuals with incomes of $75,000 or less. This would be in addition to the $600 checks issued near the end of the Trump presidency. This proposal is currently under debate in Congress. He has also proposed the extension of federal emergency unemployment benefits until September, they are currently scheduled to expire in March of this year. His proposal would increase the amount from $300 to $400 weekly. Summary In general, the Democrats led by President Biden are looking to increase taxes on the wealthy and on corporations, while providing tax breaks and stimulus payments for middle- and low-income taxpayers, as well as small businesses. Their agenda is also focused on combating climate change and consumer protections. The biggest “wildcard” in all of this is the ability of the Biden administration to tackle the coronavirus. Can they get the population vaccinated in a timely fashion and help get things back to normal? This will go a long way in determining how quickly the economy recovers. Connect with a Wedbush Advisor for answers to your questions about how these policies might impact your investments. Looking to build a financial plan based on your goals while considering market trends and risk factors? Click here to check out our approach to Wealth Management. Disclosure These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. The information in these materials may change at any time and without notice.
Staying Prepared: Taxes in 2021
As we move into 2021 there are several tax changes to be aware of. There are some new tax rules taking effect for the 2021 tax year. Some rules were enacted in 2020 in the wake of the pandemic that will impact your 2020 tax filing in 2021. And the Biden administration is expected to propose changes to the tax code as well. Tax Changes for 2021 There are not a huge number of tax changes for the 2021 tax year, but here are two to be aware of. Estate and Gift Tax Exemption The personal exemption for lifetime federal estate and gift taxes has been increased to $11.7 million per person. This is up from $11.58 million for 2020. The annual gift tax exclusion remains at $15,000 per person for 2021 – the Biden administration may seek to reduce this level. Under the Tax Cuts and Jobs Act which passed in late 2017, this is scheduled to revert back to $5 million in 2026. This presents a planning opportunity for those with large estates who wish to transfer assets to their heirs before the exemption limits are reduced. Standard Deduction There are slight increases in the standard deduction for 2021. For those filing married and joint the increase is to $25,100 from $24,800 in 2020. For single filers the new level is $12,555 up from $12,400 in 2020. While these increases are not large, it does create a higher hurdle for those who want to itemize deductions. Whether in 2021 or a subsequent year, there are benefits to bunching deductions that might normally be spread over several years into a single year to get the maximum tax benefit from itemizing deductions. Tax Changes for the 2020 Filing Season The 2020 tax season is kicking off a bit later than normal, the IRS has indicated they will begin accepting and processing tax returns on Friday February 12, 2021. The IRS is also encouraging taxpayers to file electronically this year if possible. For anyone who received a stimulus payment either under the CARES Act or the December stimulus bill, these payments are not considered to be taxable income for 2020. Potential Changes That Could Impact Your Taxes Under President Biden, there are a number of potential tax law changes that could impact a number of taxpayers. One potential change would entail increasing income taxes for those who earn $400,000 or more. His plan would raise the top marginal tax rate to 39.6% from the current 37%. This would reinstate the top rate that was in place prior to the enactment of the Tax Cut & Jobs Act. His proposal would eliminate the preferential rates for long-term capital gains and qualified dividends for those with incomes of $1 million or more. Capital gains would be taxed as ordinary income for these taxpayers, effectively 39.6% versus the current top rate of 23.8%. Additionally, the Biden plan would eliminate the step-up in basis on inherited assets, effectively raising eliminating the break heirs receive from paying capital gains taxes if they sell inherited assets. The Biden tax proposal would also limit the benefit of itemized deductions to 28% for higher income taxpayers. His proposal would also eliminate the $10,000 cap on the ability to deduct state and local taxes on federal returns. Another Biden proposal would impose the 12.4% Social Security tax on those with incomes of $400,000 or more. For 2021 incomes over $142,800 do not incur this tax. This ceiling generally increases annually. This proposal would essentially create a “donut hole” between this annual cap and those earning $400,000 or more. Summary While there are some tax changes for 2021 both for the 2021 tax year and for the 2020 tax filing season, the big changes are likely to come from the Biden tax plan if the proposal passes through Congress. Be sure to consult with your tax professional to ensure your tax planning incorporates new rules which may impact your situation. Looking to build a financial plan based on your goals while considering market trends and risk factors? Click here to check out our approach to Wealth Management. Disclosure These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. The information in these materials may change at any time and without notice.
Access Global Markets: Understanding ETFs
Since the first ETF, the SPDR S&P 500 ETF Trust (SPY), launched in 1993 assets in ETFs have grown exponentially. ETFs are similar to mutual funds in some respects, but the fact that they are exchange-traded offers a number of advantages for investors over mutual funds. Advantages of ETFs for Investors ETFs offer investors access to a diversified, professionally managed pool of stocks or bonds within the ETF’s objective. This may be tracking a popular market index such as the S&P 500 or the Russell 2000, or a more specialized benchmark tied to an industry or geographic region. ETFs trade like stocks and can be bought and sold any time the stock market is open. This means that the trade price will be the share price at the time of the transaction, not at the end of the day as with a mutual fund. Unlike mutual funds, ETFs can be traded on margin. Additionally, market orders such as stop orders, limit orders and others can be used to help ensure a purchase or sale at the investor’s target price. Call or put options can also be written on most ETFs. The structure of ETFs generally results in lower expense ratios than comparable mutual funds. ETFs were a true investment innovation when the first one was launched, and they remain innovative today. One key innovation is the liquidity they can provide to some asset classes. For example, they provide a high degree of liquidity and price discovery in a number of thinly traded fixed income and equity categories. The structure of ETFs offers daily transparency as to their underlying holdings, so an investor always knows how the ETF is invested. Their structure also offers a greater level of tax-efficiency in many cases. Industries With Attractive ETFs In terms of AUM, the technology sector is the largest. As of the end of January, the top 83 ETFs in this sector had over $371 trillion in assets. The largest ETF in this space is the Invesco QQQ Trust (ticker QQQ). This ETF replicates the NASDAQ 100 index which includes the top 100 non-financial stocks on the NASDAQ. The index is roughly 50% technology stocks and is often used as a barometer for the tech sector. The top 58 ETFs in the healthcare sector have in excess of $101 trillion in assets. The largest ETF is the Healthcare Select Sector SPDR fund (ticker XLV). The ETF holds most of the top names in this sector and is a good barometer for investors interested in investing in the healthcare sector. The top 62 ETFs within the energy sector have almost $62 trillion in assets. The largest ETF in terms of assets is the Energy Select Sector SPDR Fund (ticker XLE). This ETF has rebounded nicely over the past several months after a tough 2020 for the entire sector. Wedbush and ETF Managers Group (ETFMG) Here at Wedbush we are excited to collaborate with ETFMG on two ETFs for investors. The Wedbush ETFMG Global Cloud Technology ETF (IVES) is designed for access to the cloud infrastructure and cloud “enabler” companies, expected to drive the next 10 years of an estimated $1 trillion in cloud spending. The Fund gives global exposure to companies at the forefront of cloud technology. The ticker IVES is for Dan Ives who is a Managing Director and Equity Analyst for Wedbush Securities covering the Technology sector. Dan has been very influential in the launch of this ETF; the fund tracks the Dan Ives Global Cloud Technology Prime Index. The Wedbush ETFMG Video Game Tech ETF (GAMR) is the first ETF to target the industry and tracks the EEFund Video Game Tech Index. The video game industry is enjoyed by over 1 billion loyal users and influences many other tech industries such as virtual reality software and cloud-based services. This is a $127B global industry which is estimated to grow 49% by 2025. Michael Pachter is the Managing Director of Equity Research here at Wedbush and is a recognized expert in the video game technology sector. Michael is one of the experts for the EFT and provides ongoing insights to the fund manager. Summary ETFs offer a number of investment options for investors beyond what is available in traditional mutual funds. Talk with your Wedbush advisor to see how ETFs can enhance your portfolio. Looking to build a financial plan based on your goals while considering market trends and risk factors? Click here to check out our approach to Wealth Management. Disclosure These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. The information in these materials may change at any time and without notice.