After nearly two years of campaigning, voters have officially elected Senator Barack Obama to be the 44th President of the United States. Regardless of your political affiliation, we can all celebrate the fact that the television commercials, radio announcements and constant “robocalls” have come to an end…..that is, at least for the next two years.
What shall we expect from President-Elect Obama over the next four years? He has described for over a year the key areas he would address as President of the United States. And as with any Presidential candidate, Obama’s campaign proposals were ambitious and far reaching. However, suggesting legislation is obviously much easier than having proposals signed into law. This Viewpoint summarizes the expected agenda for the Obama administration based upon direct communication from the candidate and his advisors, as well as independent reports and analysis produced throughout the campaign.
As with any new President, the path and passage of his/her agenda is dependent upon the domestic and foreign events that occur throughout his/her four year term in office. However, the Obama Presidency is faced with a significant financial crisis even before taking the oath of office. And as became obvious in the final month of the campaign, the United States economy will dominate the administration’s agenda for at least the next couple of years. As many pundits have already acknowledged, the new administration will likely oversee the first $1 trillion deficit.
While it’s impossible to predict what the final cost for rescuing Wall Street will be, Greg Valliere, chief political strategist of the nonpartisan Washington Research Group, was recently quoted as saying “taxes will rise regardless of who wins the Presidency.” Based on President-Elect Obama’s campaign, we should expect the Bush tax cuts will remain for everyone except families earning more than $250,000 and individuals earning more than $200,000 a year. We should also expect the top two tax rates to increase from 33% and 35% to 36% and 39.6%, respectively.
President-Elect Obama also proposes increasing the long-term capital gains tax rates on investment assets from 15% to 20% for families earning more than $250,000 annually. In addition to these expected tax changes, the social security tax will also need to be addressed in order to begin to shore up the system. President-Elect Obama favors increasing the social security tax at a rate of 2% to 4% for workers making more than $250,000. Half of this tax will be paid by the employer and half by the employee. However, Obama has indicated that this change to the social security tax rate may not take effect within the next 10 years.
In contrast to the above tax increases, President-Elect Obama has proposed eliminating taxes on seniors (over age 65) making less than $50,000 a year. He also has proposed an approximate $500 tax credit for all families making less than $75,000 a year.
The 2008 federal estate tax system exempts $2 million per person upon death with a top estate tax rate of 45%. In 2009, the federal estate exemption increases to $3.5 million and then is reduced to $1 million in 2011, with a top tax rate of 55%. Obama proposes to maintain the $3.5 million exemption set in 2009 for future years as well as to keep the current rate at 45%. The most significant change Obama proposes is the portability of the federal estate tax exemption. Under the current law, if an individual fails to use his/her exemption, the opportunity is simply lost. Under Obama’s proposal, the exemption amount would become transferable from one spouse to the other, effectively doubling the surviving spouse’s exemption.
Although the portability issue may reduce potential tax consequences and the need for trusts, we would still recommend the use of trusts to eliminate probate, to provide creditor protection and generation skipping benefits, as well as to maintain assets for minors.
According to a PricewaterhouseCoopers analysis, health care costs are growing faster than the economy and more than 40 million individuals are currently uninsured. Health care can easily be viewed as the next crisis on the horizon. President-Elect Obama proposed requiring all but the smallest businesses to provide health insurance to all their employees via a government sponsored plan or pay additional taxes. In order to help offset the cost of the insurance, small businesses would receive a tax credit. However, given the current weak economic environment, it may be difficult for businesses to bear these additional costs. As a result, health care reform may have to be placed on the sideline until the economy rebounds.
Although the policies of the Obama administration are uncertain, we do know the following 2009 retirement plan and annual gifting limits already announced by the Internal Revenue Service:
- Deferral limit for 401(k) and 403(b) plans – $16,500
- Catch-up contribution limit (age 50 and older) – $5,500
- Annual limit for defined contribution plans – $49,000
- Annual Gift Exclusion – $13,000
Given the current downturn in the markets, 2009 may present a great opportunity to acquire or gift assets at depressed values.
If presidential history has taught us anything, it’s that the success of any President hinges upon the administration working with both parties and not against either one. I think we can all hope that President-Elect Obama, as well as all future elected officials, will do what is in the best interest of our country as opposed to what is in the best interest of their party.
If you have any questions, please don’t hesitate to contact us. If you’re not currently a client, but would like to schedule an appointment, please contact Lisa Reynolds at (513) 792-6648 or email@example.com.