We can now reveal the identity of the next president. Read on, if you want to know now.
The next president of the United States will be a man with little knowledge of our federal income, estate and gift tax rules, following in the tradition of the last seven or eight presidents. He will propose, or accept the proposals of others for, dramatic changes in our tax system that will make it even more complicated than it is now. He will not make it fairer or simpler, or reduce the amount of time it takes to prepare our tax returns.
This is in direct contrast to the situation that prevailed in the late 1950s and through much of the 1960s. At that time, a powerful chairman of the House Ways and Means Committee, Wilbur Mills, exercised control over the tax legislation that could be enacted. As he once said to a gathering of tax lawyers in Philadelphia, when President Eisenhower wanted a tax bill, he had to get Mills’ approval. In later years, Mills developed an unfortunate alcoholism problem and had to leave Congress, and no subsequent chairman has been able to restrain the tendency of the executive and legislative branches to want to tinker with the Internal Revenue Code.
So 2009 will bring us new tax legislation, and probably restrictions on planning that we can do for our clients and ourselves. If we know that, what should we do now, before the end of the year?
Based upon hints that have been dropped in Washington, D.C., and elsewhere, it probably makes sense to put aside in tax-deferred retirement accounts (401(k)s, etc.) as much as possible. There is some thought being given to curtailing the ability to contribute to these kinds of plans. In addition, individuals who establish family limited partnerships, as a means of managing business assets and who rely upon obtaining discounts for gifts of partnership interests should consider making the maximum gifts this year. There has also been discussion of curtailing or eliminating the ability to use discounted values in making such gifts. If you believe that, no matter who is elected, capital gains rates will rise to their prior levels, it might be wise to “harvest” capital gains this year; that is, if anyone has any capital gains.
One candidate says change is coming; the other wants change we can believe in. The operative word is change. We need, for ourselves and our clients, to understand the changes that take place and how we can deal with them.
Robert H. Louis