Financial Planning Tip October

October 2020 With an election looming, the possibility exists that control of Congress and the White House will switch parties. In anticipation of such a possibility, we've been considering how tax policy may change under Democratic control, and what moves you should make in such a situation. For starters, both houses of Congress and the White House would need shift to Democratic control to effect a tax policy change. That’s by no means a foregone conclusion. If this were to occur, the legislative process to change the tax code would surely be messy and time consuming just as it was for the 2017 Republican tax cuts. The process wouldn't start until 2021 with changes unlikely before 2022, so we don't think there's a need to make changes at this time. More than anything, we'd note that neither party has hinted at debt or deficit reduction, and history has taught us that tax hikes during a recession result in a longer, deeper recession. We think a significant tax hike would be incredibly stupid and is therefore at least somewhat unlikely. For the best idea of what to expect, we'd look back to the Obama years. In 2017, there were seven tax brackets. Most Americans' income landed in the 25%-28% bracket. Under the current regime there are still seven brackets with most income taxed between 22%-24%. Rates have definitely come down for individuals, but not by a lot. More significant were the favorable changes for all types of businesses, ranging from sole proprietors and pass-through entities up to multi-billion dollar corporations. Income at the corporate level was taxed in eight different brackets ranging from 15% to 39% in 2017. That was replaced with a flat tax of 21%, and a substantial deduction for owners of pass-through businesses. At this time, we believe it's premature to make changes based on a presumed shift in tax policy, even for businesses that have been the greatest beneficiaries of the 2017 cuts. We’ll update you immediately if this changes, but for now, any shifts would be pure speculation.



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