March 2012 Monthly Newsletter

Equities (as measured by S&P 500) had their best first quarter since the late 90’s.  The New Year seemed to renew optimism.  If you would like to discuss your accounts or the following commentary, please give me a call.

Recently I attended a presentation by Andy Friedman, the Principal of the Washington Update.  His noted it was intended to be informational.  The balance of this letter is a mini-summary his slides and commentary; however, I cannot vouch for the accuracy.

Since challenges to the new Health Care Law were recently heard by the Supreme Court, he provided a lay understanding of the key components of the law.  1) Employer Mandate – employers will either have to provide health care or pay a “penalty” or “tax” of $2000.  2) Individual Mandate – everyone must either buy insurance of pay a “penalty” or “tax” of $750 (the definition of whether this is a “penalty” or “tax” is at the center of the legal challenge.  3) Individual Rights – basically you cannot be denied coverage for a pre-existing condition.  4) Coverage for the lower income – If you earn less than $30,000 it is free and a subsidy will be phased out at $88,000.

He argued that due to the small size of the penalty/tax relative to the high cost of buying health care, employers may choose the least expensive route and stop providing insurance.  This would be an unintended outcome.  He also suggested that no matter who wins the Presidential election this Law will not be overturned, as it will take 60 Congressional votes to overcome a filibuster and neither party is likely to have 60 seats.

RE Taxes:

In 2011, 45% of the population paid no Federal Income Tax.  Also, Americans paid the lowest tax rate since 1954.

The so called “Bush Tax Cuts” were extended through 2012, but will revert back to the old rates in 2013.  He said Congress is unlikely to agree, so these are some changes:

  • Top Federal tax rate will increase from 35% to a max of 44%
  • Tax on cap gains and covered dividends will increase from 15% to max of 24%
  • Tax on uncovered dividends will increase from 15% to max of 44%

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