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Hello fellow Fools:
A lot of people are doing the gloom-and-doom thing about the sequestration and end of Bush-era tax cuts that might happen at the end of the year (see the article “The Fiscal Cliff is Closer than we Think” by Mohamed A. El-Erian, CEO of Pimco on Page A17 of the Friday May 4 Washington Post) What do you think that Fools, Value Investors, and people within 5 years of retirement who plan to live on their portfolio should do in view of this possibility?
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Welcome RobbieVanB. We're glad you could join us.

I don't think there is an easy answer. Do you think Obama will be reelected? Will Republicans control the house and the senate? Or not? Will it be close? Or a landslide one way or the other?

If the Democrats take control, I think capital gains will go to 20% and millionaires will pay higher tax rates. If Republicans win in a landslide and get control of both houses of Congress the Bush tax cuts will be renewed and there may be even more tax cuts. (But how will they deal with the deficit?)

But more likely it will be a squeaker election with some changes on both sides of the aisle. That means two more years of gridlock and brinksmanship to pass meager changes.

So if you have large capital gains on paper, you might consider if you want to sell now and pay 15% or wait and pay more. But it may not be worth it as the rules will probably change again at the first opportunity.

Personally I don't have much confidence in the voters doing what they should. So I think the future is more gridlock.
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Thank you Paul! I like your posts and you seem to have an interesting bunch of followers and those you follow. A good mentoring place for getting into Motley Fool One.

Van Robertson
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My assumption: Any tax increases will only impact those households with taxable income in excess of $250k a year.
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Apologies all: my initial post missed the point. What El-Erian said on May 4 was,
"In the next few months, possibly within weeks, markets here and abroad will be looking for signals that our politicians understand the severity of the situation and are able and willing to act appropriately. If clear signals are not forthcoming, markets could react early to the looming trouble, [a shift of 4% on the national income to taxes in order ot reduce the deficit] compounding the uncertainties that weigh on the U.S. economy."

El-Erian (a chief executive of Pimco) goes on to say: "the importance of this issue cannot be overstated. A fiscal contraction of this magnitude and composition would stop in its tracks the economy's nascent healing and job creation.
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My opinion remains the same. Unless you have income in excess of $250k in retirement, I don't think you have anything to be concerned about. Any tax increases, including that 4% shift, are unlikely to impact those making less than $250k.

In other words, I seriously doubt we will see any tax increases that would have any chance of stopping the economy in its tracks.
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Yes. But how are sequestration and tax-hike fears going to affect the markets over the summer, since the political future looks like continued gridlock and inaction on the debt and budget at least until after the election in November. Replay of the debt ceiling crisis last summer. Also combine this with European gridlock and fears? As a value investor, I see this as a big buy opportunity, since the underlying power of the businesses I choose to invest in -- US or foreign -- is lasting. Unfortunately I mostly have to sell one thing to buy another.
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