More On Tax Planningfrom The Advisor's Professional Library
- ETF Taxation The use of ETFs may be attractive to certain investors. The tax advantages may make them even more attractive.
- IRAs: In General Individual Retirement Accounts are highly popular tools for contributing funds that grow on a tax deferred basis. Depending on the type of IRA, the accumulation can be tax free.
In what looks to be a breakthrough in fiscal cliff negotiations, President Obama and Speaker of the House John Boehner met Monday morning to iron out further details on a deal.
Political analyst Andy Friedman of the Washington Update told CNBC on Friday that while he remains optimistic that a fiscal cliff deal will be made by year end, don’t count on Republicans agreeing to a debt ceiling increase until next year. “Republicans will play this [debt ceiling] card next year,” Friedman said. “I don’t think the Republicans will agree to raise the debt ceiling to get us through the next hurdle.”
Boehner on Friday offered a potential compromise, stating the he’d agree to a rate hike on those earning more than $1 million annually. However, Boehner stood firm on his insistence that the debt ceiling would only be raised if the administration agreed to spending cuts that would equal an amount greater than a debt ceiling increase.
Friedman said that while Republicans have challenged the president to be specific about "spending cuts," Republicans haven’t been specific" about such cuts "because they can’t agree on exactly what spending cuts they want." It is incumbent on the Republicans, he said, "to say exactly what they mean."
While the nation feels like “the cliff is coming at us fast,” Friedman said, "we still have a number of days," and the current state of negotiations “is the normal ebb and flow of Washington.” Congress, he continued, “acts when there is a forcing event, when they have to act because the consequences are too drastic.” The forcing events in this case, he said, are twofold: “going over the cliff and Congress’ indefatigable desire to go home for Christmas.” While negotiations may go to Christmas Eve, Freidman said he believes there’s more than a 50% chance a deal will be struck.
What will the final deal look like? Elements of the deal, Friedman said, will likely include reports that the House will take up the already passed Senate bill that extends the lower tax rates for those earning less than $250,000, and also boosts investment taxes to 20% plus the surcharge on dividends. A deal will likely include a “20% rate on capital gains and dividends and taxes going up on the top 2% of earners,” Friedman said.
When asked during the CNBC interview if a deal must result in a rise in the rates on the top income earners, as Obama has stated, Friedman replied: “I think there will be some rise in rates but not all the way to the top at 39.6%; they will be able to combine that with a disallowance of deductions, which will get the president the revenue he needs.”