Obama’s Proposed Tax Hikes: Just an Opening Bid by Tara Thompson Popernik, AllianceBernstein

Over the holiday weekend and in last night’s State of the Union address, President Obama unveiled several ideas he believes will strengthen the country’s workforce, education and infrastructure. He plans to pay for these proposals through corporate tax reform and higher income taxes on people in the top tax bracket. 

More details regarding these proposals will be released with the White House budget in two weeks, but thus far, the ideas of greatest concern to wealthy individuals include:

  • Increasing the top capital gains rate from 23.8% to 28%
  • Eliminating the step-up in cost basis on inherited assets
  • Taxing earnings on 529 college savings plans, even if these plans are used for higher education expenses, with existing investments in 529 plans grandfathered

These are only proposals, an opening bid in what will likely be a long negotiation about comprehensive tax reform. Many of these proposals are unlikely to make it into bills; even fewer will be passed into law. Last night, PBS noted that of the 18 proposals the President discussed in the 2014 State of the Union, only two became law. Neither was related to taxes.

Many investors cheered the “permanent” tax fix that came with the American Taxpayer Relief Act of 2012, but no tax law lasts forever. Maintaining flexibility and diversification with regard to income tax, estate tax and investment planning are critical for all individual investors, as political winds can change.

At Bernstein, we are closely watching developments related to tax reform in order to help ensure that our clients keep more of what they earn, based on any upcoming changes to the tax law.

Bernstein does not provide tax, legal or accounting advice. In considering this material, you should discuss your individual circumstances with professionals in those areas before making any decisions.

Tara Thompson Popernik is Director of Research in the Wealth Planning & Analysis Group at Bernstein Private Wealth Management.

Obama's Proposed Tax Hikes: Just an Opening Bid