“We Pursue Bold Persistent Experimentation”

I would first like to welcome Mark Elston, Jim Elston, Dave Quinn and Tiffany DelSanto to Legacy Wealth Planning, the best people ever to work with, in the best firm ever.  It’s great to have first rate people joining our firm and to reunite with old friends and coworkers.

I wish I had come up with the quote under the Cornerstone headline, but it’s attributed to Franklin D. Roosevelt about 80 years ago speaking about the new society and his new deal (1933-34).  It may not be too different than the issues we deal with today, coming out of a severe recession with continued high unemployment, uncertainties about the economy and a difficult Congress. So what is going to happen with the “cliff” and what do we do about it?  My thoughts: I’m convinced there isn’t a politician, who wants to be stuck with the “tax raiser” status, and with the current dialog and grandstanding, I see nothing happening until after the taxes go up in January – then Congress can posture and tell us how they worked to lower them in 2013.  In addition, Congress and the President will be out of town by the 17^th of December for Christmas break – so the surprise will be if they actually do something.

• Top income rates are going up.  I think the better question will be at what breakpoint?  $250,000 does seem too low in my mind and I can see a compromise to perhaps $500,000 or even up to a million. I think rates under $250,000 are safe for now.
• Capital gains are going up – from 15% to maybe as high as 20%.  I think this has helped push the equity markets down after the election with sellers taking profits in 2012, not wanting to risk the higher rates.
• The administration is calling for Dividend Income to be taxed as ordinary income – up to 40% or so when you include all the surcharges.  My guess is somewhere in the middle or a graduated rate.
• Payroll tax vacation is a wild card – probably gone.
• Debt ceiling will be raised as a result of the tax rate agreements.
• Medicare/Medicaid – probably some tightening.  
• Social Security – no changes for now.

Costco, Sturm Ruger and other companies have declared a “special dividend” to be paid in 2012 to avoid the rise in dividend taxes and are using cash from new bond offerings to do so. I expect to see more.  Amazon.com, Chevron, Disney are among those in corporate America those who have borrowed in November – to the tune of over $100 Billion at ultra-low rates historically– which should make you wonder what they are up to.  Mergers and acquisitions; increasing inventory and production; boosting reserves; refinancing debt; salary increase; special dividends; buying back shares are all possibilities. I think this means corporate America is not waiting to see how this falls.  They are talking advantage of the situation in whatever way they can – and looking ahead to tomorrow when this is old news. We should too.  Please call me if you have any question regarding your accounts, capital gains or any other financial situation you feel uncomfortable with.  I look forward to speaking with you.

 Merry Christmas and Happy New Year to All and Thank You for Your Business!  –  Phil

  The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.  To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing.  *Stock investing involves risk including loss of principal.The Cornerstone December 2012