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Investor Discussions - Fiscal Cliff or Slope?


Wealth & Pension Services Group
William Kring, CFP, AIF - Chief Investment Officer

1/17/13


Fiscal Cliff or Slope?

So, we've escaped the fiscal cliff, but what awaits us? In my opinion, we are now on a slope, sliding ever so slowly towards more financial distress. With no plan in place to reduce spending, just when will the sliding stop? Will we slide so fast that when we are finally ready to take action, it will be too late?

Ahead lays more negotiations for spending cuts, budget ceilings and entitlement reform, adding to market volatility. But don't expect any great solutions, Instead, expect more of the same; partial stop-gaps and a "kick of the can" - down the road.

Here is a brief review of the changes from the recent act. I'll spare you the pork that managed to find its way into the bill.

  • Tax cuts from early last decade were permanently extended for couples with less than $450,000.00 of income or individuals with less than $400,000.00. For those incomes above these levels, sorry, the marginal tax rate rises from 35% to 39.6%. And, the tax rate on capital gains and qualified dividends moves from 15% to 20%.

  • Limits on itemized deductions will be reinstated for households and individuals with income of $300,000.00 and $250,000.00, respectively. The payroll tax holiday that reduced withholding by two percentage points was not extended, so all workers paying that tax will face some loss of disposable income.

  • The alternative minimum tax (AMT) was patched again and indexed to inflation helping to partially offset its reach.

  • The current five million dollar estate tax exemption per person was permanently extended and will be adjusted for inflation.

  • There is a one-year extension of unemployment insurance benefits.

  • The Medicare "doc fix" was extended, meaning no reduction in payments to medical providers for one year.

  • The 10 trillion dollars of automatic budget cuts (sequestration) that were to go into effect were delayed for two months.

  • "Bonus depreciation" was extended for a year, meaning that businesses can still deduct 50% of the cost.