by Bryan Perry
June 23, 2020
President Trump is in for the dogfight of his life if he is to retain the White House for a second term.
Democratic candidate Joe Biden is estimated to have a very strong chance of beating President Trump in November. A model run by The Economist, updated every day, combines state and national polls, as well as economic indicators. As of June 19, it puts Biden’s chances of winning the White House at 86%, down a notch from the 87% of the previous two days, the highest chance the model has given Biden so far, as polling in several key swing states shows Biden either leading Trump or within the margin of error.
Six key battleground states will likely determine the election: Arizona, Florida, Michigan, North Carolina, Pennsylvania, and Wisconsin. The margins are tight in each with Biden gaining a recent edge in all six.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
So, what does a Biden win mean to investors regarding potential changes to income taxes and capital gains? Investors will very likely face major changes in how their stock investments are treated.
In 2019 and 2020, the capital gains tax rates are either 0%, 15%, or 20% for most assets held for more than a year. Capital gains tax rates on most assets held for less than a year correspond to the ordinary income tax brackets, which are 10%, 12%, 22%, 24%, 32%, 35% or 37%.
Depending on the outcome of the November election, investors of all income levels need to be on notice that there could be sweeping changes that will reduce net income derived from selling stocks held over a year and on dividends that fall into the “qualified dividend” category.
Those that pay income tax rates greater than 12% and up to 35% (for ordinary incomes of up to $425,800) have a tax rate of 15% on qualified dividends. The tax rate on qualified dividends is capped at 20%, which is for individuals in the 35% or 37% tax brackets and with ordinary income greater than $425,800.
Assuming Democrats retake the House and possibly the Senate, there is almost 100% consensus from the Democrats (Biden on down) that capital gains will be taxed as ordinary income, so you should count on it. Biden has said: “We have to start rewarding work, not just wealth. I would eliminate the capital gains tax — I would raise the capital gains tax to the highest rate of 39.5%” (source: Daily Wire Oct. 17, 2019).
If anyone in the press is reading this, you might ask Biden: “Investors already paid federal and state income taxes on money earned from work. Then they put those after-tax dollars at risk in stocks, where they risk loss. Doesn’t taxing gains at their highest marginal rate seem like double taxation on steroids?”
One of Biden’s candidates for VP – Elizabeth Warren – has an even bolder plan – “Mark-to-market” accounting annually on capital gains and taxing at ordinary rates for the top 1% of households. But what if the market drops the next year? Does that mean investors get a refund on their losses? I don’t think so.
Warren’s wish list also includes lowering the exemption threshold from the current $5 million to $3.5 million for inherited assets, adding a wealth tax of 2% to 5% for the top 1% and eliminating basis step-up for inherited assets, and raising the inheritance tax rates by an unspecified amount – yet to be determined.
Seeing as how the Fed, Congress, Treasury, and White House Administration have collectively gone all in on deficit spending, the Treasury Department announced that it intends to borrow $3 trillion during the current quarter to cover the massive cost of the federal government’s response to the coronavirus crisis.
That number only accounts for the legislation that has been passed to date, however, and it will grow dramatically if the “Heroes Act” (or any other piece of major stimulus legislation) becomes law. This only begs the question of how the government intends to take back the stimulus at some future date.
If the Democrats win, higher marginal tax rates and the elimination of preferential tax treatment for capital gains and qualified dividends will be the solution. I don’t see how this scenario can be avoided. And here’s my bold prediction: Even if President Trump is re-elected, I think he too will decide to raise taxes on income, capital gains, dividends, and the transfer of wealth, blaming the cost of the pandemic.
President Trump’s Tax Cuts and Jobs Act (TCJA) that was supposed to deliver a huge spike in tax revenues has been effectively torpedoed by COVID-19. With this year’s annual deficit already projected to exceed $3 trillion (source: Congressional Budget Office), the ballooning debt will require more revenue from businesses and individuals while the Fed does all it can to keep interest rates near zero.
At the end of the day, the stock market will likely hiccup hard, but ultimately regain its footing because the economy will continue to steam ahead and capital flows into U.S. equities will continue because the U.S. will remain the greatest storehouse of wealth. However, if the election goes to Joe Biden, it might prove timely to book some long-term capital gains in 2020, while the max rate of 20% is still in effect
Also In This Issue
A Look Ahead by Louis Navellier
Retail Sales Soar from April’s Abysmal Lows
Income Mail by Bryan Perry
Big Tax Changes for Investors to Consider Come November
Growth Mail by Gary Alexander
A Savings Glut + An Opening Economy = Soaring Retail Sales
Bryan Perry is a Senior Director with Navellier Private Client Group, advising and facilitating high net worth investors in the pursuit of their financial goals.
Bryan’s financial services career spanning the past three decades includes over 20 years of wealth management experience with Wall Street firms that include Bear Stearns, Lehman Brothers and Paine Webber, working with both retail and institutional clients. Bryan earned a B.A. in Political Science from Virginia Polytechnic Institute & State University and currently holds a Series 65 license. All content of “Income Mail” represents the opinion of Bryan Perry
Although information in these reports has been obtained from and is based upon sources that Navellier believes to be reliable, Navellier does not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute Navellier’s judgment as of the date the report was created and are subject to change without notice. These reports are for informational purposes only and are not a solicitation for the purchase or sale of a security. Any decision to purchase securities mentioned in these reports must take into account existing public information on such securities or any registered prospectus.To the extent permitted by law, neither Navellier & Associates, Inc., nor any of its affiliates, agents, or service providers assumes any liability or responsibility nor owes any duty of care for any consequences of any person acting or refraining to act in reliance on the information contained in this communication or for any decision based on it.
Past performance is no indication of future results. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. It should not be assumed that any securities recommendations made by Navellier. in the future will be profitable or equal the performance of securities made in this report. Dividend payments are not guaranteed. The amount of a dividend payment, if any, can vary over time and issuers may reduce dividends paid on securities in the event of a recession or adverse event affecting a specific industry or issuer.
None of the stock information, data, and company information presented herein constitutes a recommendation by Navellier or a solicitation to buy or sell any securities. Any specific securities identified and described do not represent all of the securities purchased, sold, or recommended for advisory clients. The holdings identified do not represent all of the securities purchased, sold, or recommended for advisory clients and the reader should not assume that investments in the securities identified and discussed were or will be profitable.
Information presented is general information that does not take into account your individual circumstances, financial situation, or needs, nor does it present a personalized recommendation to you. Individual stocks presented may not be suitable for every investor. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. Investment in fixed income securities has the potential for the investment return and principal value of an investment to fluctuate so that an investor’s holdings, when redeemed, may be worth less than their original cost.
One cannot invest directly in an index. Index is unmanaged and index performance does not reflect deduction of fees, expenses, or taxes. Presentation of Index data does not reflect a belief by Navellier that any stock index constitutes an investment alternative to any Navellier equity strategy or is necessarily comparable to such strategies. Among the most important differences between the Indices and Navellier strategies are that the Navellier equity strategies may (1) incur material management fees, (2) concentrate its investments in relatively few stocks, industries, or sectors, (3) have significantly greater trading activity and related costs, and (4) be significantly more or less volatile than the Indices.
ETF Risk: We may invest in exchange traded funds (“ETFs”) and some of our investment strategies are generally fully invested in ETFs. Like traditional mutual funds, ETFs charge asset-based fees, but they generally do not charge initial sales charges or redemption fees and investors typically pay only customary brokerage fees to buy and sell ETF shares. The fees and costs charged by ETFs held in client accounts will not be deducted from the compensation the client pays Navellier. ETF prices can fluctuate up or down, and a client account could lose money investing in an ETF if the prices of the securities owned by the ETF go down. ETFs are subject to additional risks:
- ETF shares may trade above or below their net asset value;
- An active trading market for an ETF’s shares may not develop or be maintained;
- The value of an ETF may be more volatile than the underlying portfolio of securities the ETF is designed to track;
- The cost of owning shares of the ETF may exceed those a client would incur by directly investing in the underlying securities; and
- Trading of an ETF’s shares may be halted if the listing exchange’s officials deem it appropriate, the shares are delisted from the exchange, or the activation of market-wide “circuit breakers” (which are tied to large decreases in stock prices) halts stock trading generally.
Grader Disclosures: Investment in equity strategies involves substantial risk and has the potential for partial or complete loss of funds invested. The sample portfolio and any accompanying charts are for informational purposes only and are not to be construed as a solicitation to buy or sell any financial instrument and should not be relied upon as the sole factor in an investment making decision. As a matter of normal and important disclosures to you, as a potential investor, please consider the following: The performance presented is not based on any actual securities trading, portfolio, or accounts, and the reported performance of the A, B, C, D, and F portfolios (collectively the “model portfolios”) should be considered mere “paper” or pro forma performance results based on Navellier’s research.
Investors evaluating any of Navellier & Associates, Inc.’s, (or its affiliates’) Investment Products must not use any information presented here, including the performance figures of the model portfolios, in their evaluation of any Navellier Investment Products. Navellier Investment Products include the firm’s mutual funds and managed accounts. The model portfolios, charts, and other information presented do not represent actual funded trades and are not actual funded portfolios. There are material differences between Navellier Investment Products’ portfolios and the model portfolios, research, and performance figures presented here. The model portfolios and the research results (1) may contain stocks or ETFs that are illiquid and difficult to trade; (2) may contain stock or ETF holdings materially different from actual funded Navellier Investment Product portfolios; (3) include the reinvestment of all dividends and other earnings, estimated trading costs, commissions, or management fees; and, (4) may not reflect prices obtained in an actual funded Navellier Investment Product portfolio. For these and other reasons, the reported performances of model portfolios do not reflect the performance results of Navellier’s actually funded and traded Investment Products. In most cases, Navellier’s Investment Products have materially lower performance results than the performances of the model portfolios presented.
This report contains statements that are, or may be considered to be, forward-looking statements. All statements that are not historical facts, including statements about our beliefs or expectations, are “forward-looking statements” within the meaning of The U.S. Private Securities Litigation Reform Act of 1995. These statements may be identified by such forward-looking terminology as “expect,” “estimate,” “plan,” “intend,” “believe,” “anticipate,” “may,” “will,” “should,” “could,” “continue,” “project,” or similar statements or variations of such terms. Our forward-looking statements are based on a series of expectations, assumptions, and projections, are not guarantees of future results or performance, and involve substantial risks and uncertainty as described in Form ADV Part 2A of our filing with the Securities and Exchange Commission (SEC), which is available at www.adviserinfo.sec.gov or by requesting a copy by emailing firstname.lastname@example.org. All of our forward-looking statements are as of the date of this report only. We can give no assurance that such expectations or forward-looking statements will prove to be correct. Actual results may differ materially. You are urged to carefully consider all such factors.
FEDERAL TAX ADVICE DISCLAIMER: As required by U.S. Treasury Regulations, you are informed that, to the extent this presentation includes any federal tax advice, the presentation is not written by Navellier to be used, and cannot be used, for the purpose of avoiding federal tax penalties. Navellier does not advise on any income tax requirements or issues. Use of any information presented by Navellier is for general information only and does not represent tax advice either express or implied. You are encouraged to seek professional tax advice for income tax questions and assistance.
IMPORTANT NEWSLETTER DISCLOSURE: The performance results for investment newsletters that are authored or edited by Louis Navellier, including Louis Navellier’s Growth Investor, Louis Navellier’s Breakthrough Stocks, Louis Navellier’s Accelerated Profits, and Louis Navellier’s Platinum Club, are not based on any actual securities trading, portfolio, or accounts, and the newsletters’ reported performances should be considered mere “paper” or proforma performance results. Navellier & Associates, Inc. does not have any relation to or affiliation with the owner of these newsletters. There are material differences between Navellier & Associates’ Investment Products and the InvestorPlace Media, LLC newsletter portfolios authored by Louis Navellier. The InvestorPlace Media, LLC newsletters and advertising materials authored by Louis Navellier typically contain performance claims that do not include transaction costs, advisory fees, or other fees a client may incur. As a result, newsletter performance should not be used to evaluate Navellier Investment Products. The owner of the newsletters is InvestorPlace Media, LLC and any questions concerning the newsletters, including any newsletter advertising or performance claims, should be referred to InvestorPlace Media, LLC at (800) 718-8289.
Please note that Navellier & Associates and the Navellier Private Client Group are managed completely independent of the newsletters owned and published by InvestorPlace Media, LLC and written and edited by Louis Navellier, and investment performance of the newsletters should in no way be considered indicative of potential future investment performance for any Navellier & Associates separately managed account portfolio. Potential investors should consult with their financial advisor before investing in any Navellier Investment Product.
Navellier claims compliance with Global Investment Performance Standards (GIPS). To receive a complete list and descriptions of Navellier’s composites and/or a presentation that adheres to the GIPS standards, please contact Navellier or click here. It should not be assumed that any securities recommendations made by Navellier & Associates, Inc. in the future will be profitable or equal the performance of securities made in this report.
FactSet Disclosure: Navellier does not independently calculate the statistical information included in the attached report. The calculation and the information are provided by FactSet, a company not related to Navellier. Although information contained in the report has been obtained from FactSet and is based on sources Navellier believes to be reliable, Navellier does not guarantee its accuracy, and it may be incomplete or condensed. The report and the related FactSet sourced information are provided on an “as is” basis. The user assumes the entire risk of any use made of this information. Investors should consider the report as only a single factor in making their investment decision. The report is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of a security. FactSet sourced information is the exclusive property of FactSet. Without prior written permission of FactSet, this information may not be reproduced, disseminated or used to create any financial products. All indices are unmanaged and performance of the indices include reinvestment of dividends and interest income, unless otherwise noted, are not illustrative of any particular investment and an investment cannot be made in any index. Past performance is no guarantee of future results.