The pre- and peri-pandemic environments are triggering market movement and tax planning opportunities in 2020.
Trump and Biden Differ on Economic Plans
Trump would continue to push free market principles, lower taxation, and deregulation, along with a decoupling from China. A Biden presidency would focus on a tax increase on businesses (up to 28%) and on individuals making over $400,000. Unemployment, while slowly improving, still hovers around 10 percent and even higher in the all-important swing states. Biden wants a Federal minimum wage increase to $15 per hour while Trump would prefer individual states handle that decision. Trump has been trying to overhaul Obamacare entirely, while Biden would prefer to add a public option. There may also be a push by either side to continue stimulus payments under the CARES Act. Andrew Yang, a democratic presidential candidate, championed this concept of Universal Basic Income as a solution to the eventual displacement of workers by robots.
Lessons from 2020 #1 - Plan Your Taxes Today Instead of Next April
2020 has been a prime example of how important it is for people to consult their financial professionals in the current tax year. The SECURE ACT and the CARES ACT provide several discussion points and possible tax savings opportunities. Non-spouse beneficiaries can receive inherited benefits in a lump sum or over ten years, instead of stretching those payments over their lifetime. The age for Required Minimum Distribution from retirement accounts increased to 72 (SECURE) and then was suspended for 2020 (CARES), giving people until the end of this month to put RMDs back. These changes can impact how much tax people pay on received Social Security benefits or if they will pay a Medicare surcharge. A comprehensive analysis can help project the tax ramifications of these decisions for 2020 and beyond.
Lessons from 2020 #2 – Changing Economic and Investment Landscape
Different areas of the economy continue to adapt. The altered landscape might necessitate a more active investment approach to avoid holding investments devastated or changed by the virus without immediate prospects for improvement. Residential real estate is shifting, as bigger cities deal with decreasing rents and mortgage delinquencies. Commercial real estate is facing opposing considerations – more employees are telecommuting but those necessary in the office need to be spaced further apart. On the bond side, U.S. Treasuries offer protection but very little in terms of yield and rates may remain suppressed for some time. This suggests a more active approach might also be necessary in fixed income, while still keeping credit quality front and center.
Lessons from 2020 #3 – Supply Chain Disruption
Another huge 2020 takeaway is how tenuous the globalized supply chain is. A failure at any point leads to a breakdown in the ability to deliver products. Corporate leadership must now consider moving their supply chain onshore. Is it more important to deliver the good for the lowest cost possible or ensure quality control over the process at a higher cost? A concerted effort to remove China from the process would greatly affect that country’s economy long term.
Housing Market News
While so much remains uncertain, the housing market remains strong, buttressed by low interest rates. Sales of existing homes rose in June and median home prices are rising, with the Northeast region increasing 3.6% over prices one year ago. While government backed 30-year fixed interest mortgages have jumped recently, there may still be rates as low 2.75% from private lending institutions. Another option might be the 15-year loan, where rates have been touching 2.25%.