Now that the initial election fireworks are over
and Americans have bid adieu to another electoral cycle, the real fun begins. It's time to tackle the country’s fiscal cliff, which will drive financial markets throughout the world in the remainder of the last lap of the year. It seems that the Treasury, President Obama and the citizens of Sandy-ravaged Staten Island all have something in common: They are all begging for change.
The little changed U.S. Congress and executive branch will be at loggerheads to the tune of $500 billion dollars in sequestering which, left unresolved, could knock 3 percent to 5 percent off 2013 GDP. Strangely, annuity investors may continue to be net beneficiaries of all the fiscal wrestling, as a 33 percent proposed increase in capital gains remains a linchpin issue. Lawmakers want to expand the tax base, but many argue that if tax rates remain the same for the middle class as the Bush tax cuts are allowed to expire for those making over $250,000 filing jointly, then capital gains will have to increase.
realizes that taking the wealthy does not drive as much revenue as anticipated, he may pull a Clinton and tell the American people that he’s been work 24-7 to find a way to keep taxes the same for the middle class but that it is impossible with a $16 trillion dollar deficit and capital gains will have to rise for all as the payroll tax cut expires.
If capital gains rates rise, tax deferred investments popularity may increase, as will tax frees. With the savings rate again stuck well below historical averages and retirement’s savings in peril, it would be a great time to exempt a portion of lifetime retirement income, as Congress proposed in 2007. With more money being pulled out of annuities' guaranteed living benefit riders than ever, it would be an ideal time provides a middle income tax benefit that would reward savers, even if it comes as the expense of investors who may see a higher capital gains rate. A low competitive capital gains rate spurs investment and growth and jives with Obama’s vision of an increasingly progressive tax code. This move would cater to senior voters who are looking for a break to offset the proposed massive increase for some investors in the taxation of dividends.
Right now, investors are worried about the market and don’t want to provide capital because they don’t know what the rules of the road will be and employers are frozen in their hiring decisions and decisions to raise pay because of the uncertainty of taxmageddon and the fiscal cliff
looming. If capital gains rates go up, the average middle class annuity buyer may see the triple tax deferred advantages and safety of annuities in a new light and the impact of a more flexible living benefit as a retirement savior.
Either way, the rest of the year will be a bumpy road full of curves and potholes. At least with the uncertainty of the election out of the way, we can wait and see if savers and investors come to play or lay their heads in the sand and continue their mass exodus from equities.