Hello Eagle Wealth Community,
More spending = higher taxes?
That seems likely with a $2 trillion American Jobs Plan (that could eventually cost trillions more) on the table to bolster America’s crumbling infrastructure and invest in R&D.1
What could those tax hikes look like? Let’s consider the possibilities.
Though President Biden committed to not raising taxes on folks earning less than $400,000 per year, it seems hard to believe that he’ll be able to keep that promise with such a massive bill to cover.2
Also, it appears that married folks filing jointly could find themselves facing a big marriage penalty if they get swept over the $400k threshold as a household.2
One option on the table is a new auto mileage tax, which would raise money for highway infrastructure. Another is higher fuel taxes, which could increase what Americans pay at the pump.3 However, both proposals would be difficult to get through Congress, so they seem unlikely to come to fruition.
Some economists favor funding long-term infrastructure spending with ultra-long bonds and its possible Treasury Secretary Yellen will consider issuing 50-year bonds for the first time since 1911 to take advantage of low interest rates.4
Bottom line: we don’t know exactly what will ultimately come out of Congressional haggling; however, it’s smart to prepare ourselves for potentially higher tax rates in 2022.
What could those look like? While we don't have a crystal ball, the following changes seem very possible:
- A higher top income tax rate
- A higher capital gains tax rate
- A higher corporate tax rate
- A lower estate tax exemption amount
We’ll know more as the final deal shakes out, but it's clear these possibilities make 2021 even more critical for tax and estate planning.
In other tax news, the IRS has extended the deadline for making 2020 IRA and HSA contributions to May 17, giving folks an extra few weeks to get them in.5
Also, folks who already filed and paid taxes on 2020 unemployment benefits and are due money back under the recent rule change will automatically get refunds from the IRS, avoiding the need to file an amended return (unless they became newly eligible for additional credits or deductions).6
There’s a lot going on right now in Washington and we can’t know what the final resolution will be until all sides have their say.
However, it’s wise to remember that laws and circumstances change all the time. All we can do is stay on top and plan ahead as best we can.
Yours in tax news,
Your Eagle Wealth Team
S&P 500 Hits 4,000
Monday opened with two banks reporting they face losses due to the default of a small U.S. hedge fund. That news, combined with rising yields, higher new cases of COVID-19, and a public warning of new virus variants, started the week off on an unsettled note.4
Despite the shaky start, upbeat economic reports helped spark a rally that was paced by gains in the technology sector. The market also reacted positively on Wednesday to the introduction of a $1.9 trillion infrastructure proposal.
Stocks closed out the week with an exclamation mark, with the S&P 500 Index closing above 4,000 for the first time.5
Hedge Fund Woes
Last week’s trading opened on news that a U.S.-based investor was forced to unwind positions in multiple Chinese technology companies and American media holdings.
A number of large banks saw their share prices fall early in the week, reflecting concerns about their exposure to the hedge fund losses. Meanwhile, investors grappled with whether this was a one-off event or the opening act for additional hedge fund issues. As the week wore on, it appeared the hedge-fund issues were an isolated event.4
THE WEEK AHEAD:
KEY ECONOMIC DATA
Monday: Factory Orders.
Tuesday: Job Openings and Labor Turnover Survey (JOLTS).
Wednesday: Federal Open Market Committee (FOMC) Minutes.
Thursday: Jobless Claims.
Source: Econoday, April 1, 2021
The Econoday economic calendar lists upcoming U.S. economic data releases (including key economic indicators), Federal Reserve policy meetings, and speaking engagements of Federal Reserve officials. The content is developed from sources believed to be providing accurate information. The forecasts or forward-looking statements are based on assumptions and may not materialize. The forecasts also are subject to revision.
THE WEEK AHEAD:
COMPANIES REPORTING EARNINGS
Tuesday: Paychex, Inc. (PAYX).
Thursday: Constellation Brands (STZ), Conagra Brands (CAG).
Source: Zacks, April 1, 2021
Companies mentioned are for informational purposes only. It should not be considered a solicitation for the purchase or sale of the securities. Investing involves risks, and investment decisions should be based on your own goals, time horizon, and tolerance for risk. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost. Companies may reschedule when they report earnings without notice.