Affluent Will Face Tax Hikes Next Year: Friedman of Washington Update

“It’s going to be very difficult for everyone to simply extend the Bush tax cuts,” Friedman said. “I think it comes down to what the president wants: let them expire for those families with $250,000 in income. If Congress passes a bill that extends the Bush tax cuts for everyone—[Obama] will veto this because it includes the wealthy.” This means that “Republicans have a tough choice: either they say they won’t pass anything and taxes go up or they say ‘fine’ and let income taxes go down for the middle class.” Then, the compromise will likely be taxing those earning $1 million or more, he said. “I think Obama will accept that compromise.”

Given worries over the fiscal cliff—which Friedman says will likely be averted—as well as about taxes, the election and the European debt crisis, “markets will be very volatile” for the remainder of this year. “If clients are thinking about selling a business, let’s do that before the end of the year with the 15% capital gains rate still in place,” Friedman advised. And when helping clients who are rebalancing portfolios and “redeploying assets, think of municipal bonds and [putting the most toward] 401(k) plans and deferred annuities.”

Who will win the election—Obama or Mitt Romney? Friedman predicts it will be Obama. However, he stressed that the election will hinge on which way independent voters go. “The best key to this election is what independent voters are thinking.”