Don’t get the flu. I have it. It’s not fun. I feel like a bus hit me. And no, it’s not COVID. I have two tests to prove it. I’m just early to the flu game in 2021. Now, what could make the flu worse? How about higher taxes? With a new tax code, U.S. democrats are pushing for the greatest expansion of the social safety net since the 1960s. Now, you know that I don’t have much faith that an unaccountable group of people (the government) is going to make everyone’s life better… but, hey… voters constantly dream.
The Newest U.S. Tax Code
Under the new tax code – assuming a bill passes – you will need to know the following. Now, I’m not going to get into inheritance taxes or things like that. I only want to focus on how it impacts your investments.
First, the top rate would increase from 37% to 39.1%. If you’re fortunate enough to be in the top tax bracket, then any short term stock trades would go up in term of taxes.
Second, capital gains would increase from 20% to 25%. If that’s the case, then any asset you own for more than 12 months would see a jump in tax obligations.
Third, and this matters most… ETFs or Exchange Traded Funds would likely see a huge shift in tax liability. From the Financial Times:
“The bill, floated last week in the Senate by finance committee chair Ron Wyden, if passed, would no longer allow ETFs and other regulated investment companies to be exempt from recognising gains when distributing property in kind to a redeeming shareholder — something ETFs do routinely when managing their securities baskets.”
If you are a passive investor, if you trade ETFs, if you are focused on retirement, you need to get ahold of this now. Call your broker. And if your broker DOESN’T KNOW the answer, fire them.
I’ll give your broker 72 hours to explain what is going on. This Monday, I’ll break down everything by doing my job. I’ll make calls in Washington. I’ll contact my friends in accounting… and I’ll show you where to put your money if things go awry. How’s that?