Tax

Wealth Management Clients Face Stark Choice In Presidential Election

Charles Paikert, Contributing Editor in New York City, September 17, 2012

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The conventions are history and the campaign has swung into high gear. For the high and upper high net worth clients of wealth managers, the fiscal consequences of the 2012 US presidential election are unusually stark.

The conventions are history and the campaign has swung into high gear. For the high and upper high net worth clients of wealth managers, the fiscal consequences of the 2012 US presidential election are unusually stark.

If President Barack Obama is re-elected, he wants to raise the marginal tax rate on married couples with income above $250,000 and singles with income above $200,000 from 33 per cent to 36 per cent and from 35 per cent to 39.6 per cent, respectively.

Based on his last budget proposal in February 2010, President Obama also wants to phase in the “Buffett Rule,” a minimum tax rate of 30 per cent on taxpayers with income over $1 million.

In sharp contrast, Republican presidential candidate Mitt Romney, the former governor of Massachusetts and chief executive of the private equity firm Bain Capital, wants to cut all individual rates by 20 per cent, reducing the top tax rate from 35 per cent to 28 per cent.

Capital gains and dividends in crosshairs

For the wealth management business, the most significant difference between the two candidates is the potential change in the rate that capital gains and dividends are taxed at, according to Tim Steffen, director of financial planning for Milwaukee-based RW Baird & Co’s private wealth management group, and author of the report Where the Presidential Candidates Stand on Financial Issues.

For higher income taxpayers (couples with income over $250,000 and singles with income over $200,000) President Obama would raise the long-term capital tax rate from 15 per cent to 20 per cent. Qualified dividends for those taxpayers would be taxed as ordinary income, which, combined with his other proposals, would result in tax rates of 36 per cent or 39.6 per cent.

Obama would also maintain the new 3.8 per cent Medicare tax on investment income included in the 2010 Affordable Care Act, which would boost the top tax rate on long-term capital gains and dividends to 23.8 per cent and 43.4 per cent, respectively.

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