No Matter Who Sits in the Oval
Office Next, Expect Higher Taxes!
Today's comment is by Mark Nestmann, our Wealth Preservation and Tax Consultant, Privacy Expert and President of The Nestmann Group.
Dear A-Letter Reader,
I don't often agree with Sen. Hillary Clinton (D-N.Y.), but she told the truth at a recent presidential forum hosted by CNN:
"(We)...can't just let business as usual go on, and that means something has to be taken away from some people."
Hillary's right, although not for the reasons she'd like to admit.
Out-of-control entitlement programs, pork-barrel spending, and open-ended wars in Iraq and Afghanistan mean that it's a foregone conclusion that "something has to be taken away from some people."
And that makes tax hikes a near-certainty in 2009, after the next election.
That election is now less than a year away. No matter who wins it, you can rest assured that the new President will call for higher taxes.
Our next President will have very little choice - if they want to cover Social Security, Medicare benefits and other debt obligations in our "pay-as-you-go" system. And how enthusiastic do you think that Hillary, Obama, Michael, Rudolf or any other leading presidential candidates will be to take away these benefits?
Not to mention our new President will have to cover at least some of his (or her) campaign promises. And that means more funding.
Soak the Rich!
The fact is that none of the major candidates - and virtually no one in Congress - is willing to propose making radical reforms to entitlement programs and spending priorities. But with baby boomers (and the U.S.'s largest voting population) now entering retirement age, someone has to pay for them. And what better way than through the time-honored tradition of "soaking the rich?"
Already, the wealthiest 1% of taxpayers pay 35% of all federal income taxes. The top 10% pay more than two-thirds of the income tax. Yet, Congress and the leading presidential candidates want wealthy taxpayers to pay even more.
Currently, Congress is considering legislation:
- To impose a 4% surcharge on individuals and families on income above US$150,000 and US$200,000, respectively. That surcharge would rise to 4.6% on individual and family income above US$200,000 and US$500,000.
- To allow the tax cuts of 2001 and 2003 to expire. Here, Congress doesn't need to lift a finger. The 15% tax rate on most long-term capital gains and qualified dividend income expires at the end of 2010. Beginning in 2011, dividends will be taxed at your marginal tax rate. Capital gains rates will return to 20% (10% for low-income Americans). The top marginal tax rate will increase from 35% today to 39.6%. Finally, estate tax would apply at a maximum rate of 55% on estates larger than US$1 million (US$2 million for a married couple).
- To eliminate the US$97,000 ceiling on Social Security tax payments. A self-employed American making US$250,000 a year currently pays US$12,125 in Social Security taxes. If the threshold were eliminated, that tax will jump to US$31,250.
- To tax publicly traded partnerships (i.e., investments for which you receive a K-1 each year) at the 35% corporate rate instead of the current 15% capital gains rate.
- To greatly reduce your ability to avoid paying tax in deferred compensation arrangements.
- To impose a "mark-to-market" exit tax on individuals who give up their U.S. citizenship or long-term residence to avoid tax.
Fortunately, it's not too late to deal with the inevitability of higher U.S. taxes in the years ahead. By planning now, you can dramatically lower your future tax burden...and the greater the tax hikes imposed, the more you'll save.
Combine this planning with a tax-compliant offshore structure and you'll enjoy the benefits of increased privacy, asset protection, and investment choice.
MARK NESTMANN, Privacy Expert
President of The Nestmann Group
assetpro@nestmann.com
www.nestmann.com
P.S. Looking for ways to beat higher taxes in 2008? I gave my six top strategies to cut your tax bills in January's forecast issue of our members-only newsletter, The Sovereign Individual. If you're currently a Sovereign Society member, please look for your special 20-page issue coming online this weekend. Not a member? Click here to sign up right now for Sovereign Society membership and you'll receive our 20-page New Year issue with my six tax-saving strategies. Plus, you'll get a wealth of investment ideas packed with upside potential in 2008 and beyond from our experts in Canada, the U.S. and Europe.
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Why New York Is Losing Business to
London, Hong Kong and Tokyo
The United States is still one of the best countries to market products and services in the world. The U.S. boasts a vast borderless size that expands from coast to coast, a single currency for transactions and a huge 300 million consumer-based economy. All these perks make the U.S. a great free-market unlike any other country.
But since 2002, America has been losing its share of foreign listings mainly because of onerous listing requirements and expensive compliance requirements. That's the word from the Committee on Capital Markets Regulation after conducting a definitive survey.
Foreign companies delisting this year in the United States rose to 56 through the end of November 30 from last year. That's a sizable 87% increase. Ten years ago, that figure was just 12. In the last decade, delistings have surged a cumulative 367%.
The trend to list abroad really gained momentum following the Enron and Worldcom scandals earlier this decade. The SEC subsequently went gangbusters. They introduced the complex and mundane Sarbanes-Oxley legislation which makes it too expensive and burdensome for international companies to list on U.S. exchanges.
And many either avoided U.S. listings altogether or delisted and headed to London - a primary beneficiary of lost U.S. business because of less burdensome listing requirements.
To be sure, the United States is still the world's largest and most liquid stock market.
Despite cumbersome listing requirements and burdensome regulations, many companies still seek a listing on the New York Stock Exchange and view that listing as prestigious. But that's not the case for smaller companies where London's AIM or Alternative Investment Market continues to draw a swarm of listings.
In order to make the U.S. an attractive destination for new listings again, especially for smaller companies going public, the government and SEC should work together to scrap or seriously revise current legislation. Otherwise, London, Shanghai, Tokyo and Hong Kong will reap what New York fails to sow.
ERIC ROSEMAN, Investment Director
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It's Not Looking Good for the Pound
On Wednesday, the Bank of England (BOE) released its minutes of their latest Fed meeting. It was unanimous: The bankers voted 9-0 to cut interest rates.
You know something's wrong when all bank members want to cut interest rates. It means their economy is clearly headed south, and they're desperately hoping a rate cut will be enough to boost the economy. With such a landslide vote, it also means we can expect more cuts in the near future.
This will all be a negative for the British pound. Part of the drop has already been felt in the GBP/USD exchange rate but there's much more to come. So far, it's dropped a whopping 1,000 pips off of its 2.1100 highs. To put this in perspective, that's like a stock dropping roughly 75% of its yearly gains.
The slumping British economy will drive the pound down even further against the U.S. dollar because economies don't turn on a dime. They take time to make a turn around and recover.
Also, the exchange rate pair is breaking its 6-month uptrend line shown below. So we can see that the pair's upward momentum is being lost.
Translation: The dollar will get some of its strength back, while the pound suffers.
SEAN HYMAN, Currency Director
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