fiscal cliff comments from andy friedman
TRANSCRIPT
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7/29/2019 Fiscal Cliff Comments From Andy Friedman
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Not FDIC Insured Not Bank Guaranteed May Lose Value
Eaton Vance on Washington
From the Hill to the Street:An insiders perspective
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7/29/2019 Fiscal Cliff Comments From Andy Friedman
2/19
Eaton Vance on Washington
Copyright Andrew H. Friedman 2013. Printed by permission. All rights reserved.
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Neither Andrew Friedman, nor any law firm with which he may be associated, is providing
legal or tax advice as to the matters discussed herein. The discussion herein is general in
nature and is provided for informational purposes only. There is no guarantee as to its
accuracy or completeness. It is not intended and may not be regarded as legal or tax
advice, and financial advisors and other recipients of this information may not rely upon it
(including for purposes of avoiding tax penalties imposed by the IRS or state and local tax
authorities). Advisors should consult with their firms legal and tax counsel as to matters
discussed herein. Clients should consult their own legal and tax counsel before entering
into any investment, annuity, estate planning, or trust arrangement, and financial advisors
should advise their clients to do so.
Andrew Friedman is not an employee of Eaton Vance and his commentary is based on
independent research.
Disclosure
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7/29/2019 Fiscal Cliff Comments From Andy Friedman
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Fiscal Cliff Compromise
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Permanently extends the existing tax rates for families withincome under $450K ($400K for individuals).
Permanently extends the current $5.12M estate, gift, andgeneration skipping tax exemptions (indexed for inflation).
Increases the estate tax rate to 40% (from 35%).
Permanently patches the alternative minimum tax to keep
it from affecting more taxpayers in later years.
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Fiscal Cliff Compromise
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Delays for two months the implementation of thesequester government spending cuts.
Extends unemployment benefits through 2013.
Permits payroll tax rate to revert to 6.2% (from 4.2%).
Leaves intact the 3.8% surtax on investment income forfamilies with income over $250K ($200K for individuals).
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Fiscal Cliff Compromise
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Extends through 2013 tax-free distributions of up to $100Kfrom an IRA to a charity.
An individual may make a tax-free charitable distributionduring January 2013 and have it count as a 2012 rollover.
Individuals who took a distribution in December 2012 maycontribute that amount to a charity and treat it as an eligiblecharitable rollover.
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Income
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Family income Ordinary income Cap gain/DividendTax Rate Tax Rate
< $250K 35% max 15% max
$250K $450K 38.8% 18.8%
> $450K 43.4% 23.8%
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Items
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Government borrowing limit (reached December 31)
If not increased, U.S. defaults on its debt
Sequestration spending cuts take effect (March 1)
Government 2013 appropriations (March 27)
If not passed, U.S. government shuts down
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Items
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Republicans will demand spending cuts (which werealmost entirely absent in the fiscal cliff compromise). It isno longer possible to meet that demand by cuttingdiscretionary spending.
Democrats will demand that the spending cuts be balancedwith additional tax increases. It is no longer possible tomeet that demand by raising tax rates.
That means we are heading for a debate over entitlement
and additional tax changes.
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Deficit Outlook (in billions of dollars)
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2008 budget deficit $ 4552009 budget deficit $ 1,400
2010 budget deficit $ 1,300
2011 budget deficit $ 1,300
2012 budget deficit (est) $ 1,100
Source: Budget of the U.S. Government, Mid-Session Review, Fiscal Year 2012, Office of
Management & Budget (Aug. 2011); An Update to the Budget and Economic Outlook: FiscalYears 2012-2022, Congressional Budget Office (Aug. 2012)
Total debt outstanding is now 100% of GDP for only thesecond time in history (other was during WWII)
2011 F d l S di ($3 6T)
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2011 Federal Spending ($3.6T) (in billions ofdollars)
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Source: Budget of the U.S. Government, Mid-Session Review, Fiscal Year 2012, Office ofManagement & Budget (Aug. 2011)
Mandatory Programs(Entitlements)$2,102 (58%)
Interest$216 (6%)
Defense$835 (23%)
Domestic
$477 (13%)
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Deficit Reduction Plan
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Social Security changes
Medicare changes
Tax changes
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Changes
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Increase retirement age
Reduce CPI increases in Social Security benefits
Means test benefits
Increase wage cap subject to Social Security taxes
No changes for individuals currently 55 or older
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Possible Medicare Changes
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Increase eligibility age
Increase co-payments
Require affluent recipients pay for coverage
No changes for individuals currently 55 or older
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Possible Tax Changes
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Cap on exemptions and itemized deductions
Employer-provided health insurance
Tax-exempt interest on bonds
Pension plan contributions
Charitable contributions
Mortgage interest deduction
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Possible Tax Changes
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Potential loophole closers:
Master limited partnerships
S-corporation distributions
Carried interests
Wealth transfer techniques
Changes unlikely to be retroactive. Could apply from dateof enactment or beginning in 2014.
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Other 2013 Legislative Items
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Immigration
Gun control
Domestic manufacturing
Energy
Fannie Mae / Freddie Mac (housing)
Comprehensive tax reform
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Possible Investment Planning
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Markets likely to be volatile for first quarter
Prepay charitable contributions
Pay down mortgage debt
Keep an eye on municipal bonds
Take advantage of sophisticated gifting techniques
Consider investments that provide retirement income
guarantees
Prospective investors should consult with a tax or legal advisor before making any investment decision.
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Investing in mutual funds is subject to stock market volatility. Income from investments in
municipal funds may be subject to federal, state and local tax; a portion may be subject tofederal alternative minimum tax. The ability to use certain tax-management techniquesmay be curtailed or eliminated in the future by tax legislation, regulations, administrativeinterpretations, or court decisions.
Before investing, prospective investors should consider carefully a Fund's
investment objectives, risks, charges, and expenses. A Fund's current prospectusand summary prospectus, contains this and other information about a Fund and isavailable through your financial advisor. Read the prospectus carefully beforeinvesting or sending money.
Eaton Vance does not provide tax or legal advice. Prospective investors should consult with
a tax or legal advisor before making any investment decision.
Copyright Andrew H. Friedman 2013. Printed by permission. All rights reserved.
Disclosure
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7/29/2019 Fiscal Cliff Comments From Andy Friedman
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For more information please contact us at:Eaton Vance Distributors, Inc. Member FINRA/SIPCTwo International PlaceBoston, MA 02110800.225.6265
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Eaton Vance on Washington
From the Hill to the Street:An insiders perspective
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