My inspiration for this quarter’s letter comes from one of my clients. Out of the blue last month, she called just to say how happy she was to be seeing such big gains when she opened her statements. And then this month she called worried about higher taxes. Suddenly she didn’t feel so good about being “wealthy”. Could I help her figure it all out?
First, some reasons why those statements looked so good when the news was so bad:
• During the pandemic, you did your part by saving more & spending less.
• W&A investment portfolios were diversified to take advantage of changing trends.
• And trends did change – in the stock market, there have been shifts from large-cap to small-cap, U.S. to international, and growth to value.
• We advised that you should have enough cash to weather downturns without selling.
• And yes, this time was different! The government was quicker to react with fiscal stimulus & lower interest rates compared to the 2008-09 downturn. (Source: crfb.org)
Now, let’s tackle that question about higher taxes. As I write this letter in early April, the answer to the question “Will my taxes go up?” is that “It all depends…” Based on current tax proposals, answers would be different based on these questions:
• Is your taxable income less than $400,000?
• Or is it between $400,000 to $1 million?
• Or if your income is over $l million, or your net worth is $50 million or more, there might be a different answer.
• And if you or your portfolio is subject to U.S. corporate taxes, the current top rate of 21% might increase to 28%. From 1995 to 2017 it was 35%. (Source: Internal Revenue Service).
Perry ended with an excellent quote from Judge Learned Hand (1934): “Anyone may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one’s taxes.” All of us at W&A look forward to helping you do just that.