Future Tax Reform – Capital Gains

Investors should pay attention to tax reform. Capital gains breaks are likely to end by 2015 as lawmakers look for ways to broaden the tax base so income tax rates on individuals can be reduced.

Why is this important?

Discussions about tax reform are going to intensify in the coming months, especially now that the head of the Senate Finance Com., Max Baucus (D-MT), has announced he’ll leave the Senate after next year. He’ll push to make revamping the tax code his legacy.

In the end, we think gains and dividends will be taxed as ordinary income as part of any final tax overhaul measure. To achieve significant rate reduction, taxwriters will have to cut big-ticket tax breaks, and preferences for capital gains and dividends cost a lot of revenue. The tax preferences for capital gains was axed in the 1986 tax reform law, so there is a precedent for this. But the top rate on gains and dividends may be capped at 28% if the top rate on individuals winds up over 28%.

For more information, Contact Heckman & Associates

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