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Did Obama Declare War on Affluent Investors?

January 22, 2015

Financial advisors had better brace for an influx of calls from irate clients wanting to know how the tax proposals U.S. President Barack Obama outlined in his State of the Union speech could affect their estate planning. The short answer is that clients would feel the pinch, but no such hike is likely to occur, according to news reports.

Obama wants to levy capital gains taxes on appreciated securities that investors transfer to heirs upon death. He would also tax couples earning at least $500,000 at 28%, where it was during Ronald Reagan’s presidency, from 23.8% today, CNBC.com reports. However, as a commenter notes under this article, Reagan “cut the top tax bracket’s percentage by half. Kinda important juxtaposition.” Reagan later raised taxes again in response to budget shortfalls.

Several advisors weighed in for an On Wall Street article to deride the proposal’s logic and potential impact. “We have clients who are teachers with portfolios worth over $1 million, which is what they will need for retirement,” says Tom Orecchio, principal at Modera Wealth Management in Westwood, N.J. “If they make trades throughout the year that add up to $250,000, they would be affected — even if the president’s increases were lessened by a political compromise.”

Investors have already felt the pinch of tax hikes under Obama, Raymond James advisor Bruce Cacho-Negrete of Coral Gables, Fla., tells InvestmentNews. He refers to the 2013 top-up instituted to help fund the Affordable Care Act, also known as Obamacare, which changed the country’s health insurance landscape. However, as Susan Colpitts of the Norfolk, Va.-based advice firm Signature tells the same publication, nervous advice clients can take comfort in the odds a Republican-controlled Congress will block the president’s new proposal.

Other commenters to both articles offered suggestions on everything from best practices for taxing Americans to why some Americans earn lower incomes. “The lower half will never have asset wealth. Even if you gave them assets, they would sell them and invest in cigarettes and tattoos,” wrote one CNBC.com commenter.

The president also proposed that financial institutions with over $50 billion in assets pay a 0.07% tax on their liabilities, according to InvestmentNews. Sifma, which represents brokerages and asset managers, criticized the move as a hindrance to economic growth. Another of Obama’s proposals would strip some of the tax benefits from 529 college savings plans, Ignites reports.

By Chris Latham
  • To read the CNBC.com article cited in this story, click here.
  • To read the Ignites article cited in this story, click here if you have a paid subscription.
  • To read the InvestmentNews article cited in this story, click here (free registration required).
  • To read the On Wall Street article cited in this story, click here.