Permanent Value

Yes We Can

Bruce Doole
November 5th, 2008

CHANGE IS COMING…. At least that is what we hear from our new President-Elect Barack Obama. We hope it is positive change. After eight years of the Bush Administration, we will have the Democrats in the White House and controlling both the Senate and the House of Representatives. This scenario is the same as when Democrat Bill Clinton entered the White House in January of 1993. At that time, we were nearing the end of a recession, and had two more years to go on a significant housing slump. This included a significant bailout by the government of financial institutions and then stepping in to take over large portions of distressed real estate. We had also recently completed a war in Iraq. Sound familiar? After two years of the Democrats controlling the government the Republicans took over both houses in the 1994 elections for the first time in decades. This was followed by one of the strongest six years we’ve had economically in the last 50 years. Fine, but what is going to happen from here? First we have to continue to clean up the financial and real estate mess. It will be at least a year or two before the housing market recovers but if whatever new tax legislation is enacted does not stifle investment and job creation (see below for Obama’s tax proposals) the investment markets may recover even before then.


The following provides a broad overview of Barack Obama’s proposed plan, along with current tax rates and their expirations.

  • Income taxes: Obama proposes raising taxes on those earning more than $250,000, while lowering or maintaining the current rates on lower- and middle-income brackets.2
  • Capital gains and qualified dividends: The current tax is at a top rate of 15%. Obama proposes raising these rates to 20% for those making more than $250,000 per year. If Congress does not act to change the current sunset provision, the top rate would return to 20% for securities held more than one year, regardless of any action taken by the upcoming administration.2
  • Alternative minimum tax: For years Congress has been approving temporary fixes to protect taxpayers affected by the alternative minimum tax (AMT). Barack Obama is in favor of permanently extending—and expanding—the current AMT patch.
  • Federal estate tax: It is likely that Obama would leave the top rate at 45% and keep the $3.5 million exclusion already scheduled to take effect in 2009. These laws are set to expire in 2010, but will return the following year with the lifetime exemption reverting to the pre-2001 tax law level of $1 million.
*Source Schwab Institutional website. 2 3 Election Year Tax Guide by Rande Spiegelman, CPA, CFP 8/28/2008

We will be keeping these tax plans in mind as we see what the first priorities of the new administration are. You can be sure that in additional to revising tax policy, alternative energy and healthcare will be high on the list and we will be structuring portfolios accordingly. The economic issues we are facing are not going to be solved tomorrow regardless of the expectations, which are currently very high. It’s going to take a coordinated effort between business and government with open lines of communication. We are making progress but we have a long way to go. The strength, resilience, and technological know-how of this country will ultimately win the day.