Thursday, November 13, 2008

HOW COULD YOU BELIEVE ME WHEN I SAID I LOVE YOU WHEN YOU KNOW I'VE BEEN A LIAR ALL MY LIFE

I do not think it is wise to try to “second guess” President-Elect Obama and Congress concerning 2009 tax law changes when doing 2008 year-end tax planning.

Do you actually believe that what a candidate says he/she will do during a campaign will bear any resemblance to what he/she will actually do once elected?

Having grown up in Hudson County, New Jersey (which spawned a corrupt Democratic political machine that rivaled Tammany Hall and Chicago under the senior Mayor Daley), and having dealt with the great masses – washed and unwashed – for over 35 years, I have turned out more cynical than most, especially when it comes to politics.

I certainly believe that anything said by any politician, whether during a campaign or while in office, should be taken with many grains of salt.

I will admit that I do believe President-Elect Obama has more motivation to “keep his word” than most politicians, and I do not wish to judge him prematurely. So I will grant you that the 2009 tax legislation, at least in its initial presentation, will attempt to remain true to the “spirit” of BO’s campaign promises.

But, however “pure of intention” the tax legislation may start out, once Congress gets through with the thing it will be a conglomeration of special perks for special interests, and not necessarily what is best, or what is perceived by BO to be best, for the country. Like any other legislation it will be a compromise.

I do expect that, to a degree, taxes will be reduced for lower income levels (and more “non-taxpayers” will be added to the already too-high number) and increased for whatever level of income Congress gets around to finally deciding is rich.

So if you are in the lower brackets you should follow traditional year-end strategy – postpone income and accelerate deductions. And if you are in the upper levels you should at least consider the opposite – postpone deductions and accelerate income. However, do consider that deferring the payment of tax until the future does have its benefit even if tax rates will rise slightly.

Investors in the higher brackets, and subject to the 15% special capital gains rate, should consider taking profits during the last two months of 2008 to lock-in the 15% rate. There is a slight possibility that 15% could become 20% in 2009.

That’s what I think. How about you?

TTFN

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