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Stay in the Know: What a Biden Presidency Means for Your Personal Finances

Biden Tax Plan

The landmark 2017 Tax Cuts and Jobs Act (TCJA 2017) championed by Former President Trump effectively overhauled the tax code. Perhaps most significantly, the corporate tax rate was slashed from 35% to 21%. President Biden has proposed raising that limit to 28%, among other measures. Included in his tax proposals:

  • Increasing the tax rate on the top bracket of those earning >$400k from 37% to 39.6%
  • Long-term capital gains taxed on income above $1M would be taxed at 39.6%
  • Further limiting itemized deductions

With the majority so thin in the Senate, these changes are likely to be pursued through the budget reconciliation process, which is also where the TCJA 2017 was born. This only requires a simple majority to pass the Senate, circumventing the 60-vote supermajority needed for ordinary legislation.

Potential Implication: If a higher capital gains rate becomes a reality, high net worth earners may want to consider realizing a portion of their capital gains now during a lower tax regime. This is especially true of assets with shorter-term horizons or any speculative holdings. Any securities sold could be re-purchased after 30 days, effectively resetting the cost-basis. (See the bottom of this article for related disclaimers).

Retirement Savings

Retirement contributions may also see some changes. Currently, deductions for 401(k) contributions are structured such that the same amount of money contributed from high and low tax-bracket would result in the higher earner receiving a bigger deduction. Policy experts expect this to be flattened at some point in the Administration.

Potential Implication: This is another reason to save save save for retirement. Any changes in this area would only encourage highly compensated employees to max out on their retirement benefits while the current tax incentives remain in place.

Estate Planning

One of President Bidens less talked about, but particularly controversial, proposals include changes to a provision called “step-up in basis” in inheritance law. Rather than capital gains tax being applied to the original cost of the inherited asset, the basis is reset to the fair value at the time of inheritance, effectively eliminating any capital gains tax liability. Biden has called for elimination of this tax treatment which would significantly increase tax liabilities for heirs.

Despite his indicating interest in pursuing changes, experts say it would be particularly difficult for President Biden to eliminate or change this provision.

Potential Implications: The estate tax or “death tax” has long been a political battleground. A potential repeal of the “step-up in basis” provision may incentive the gifting of appreciated assets as a means of estate reduction.

Higher Education

Another frequently addressed issue on the campaign trail was the skyrocketing cost of education. Included in the Biden Administration’s proposals:

  • Two years of free post-secondary education (community college, trade school, or other job training)
  • Free tuition at public college and universities for households making less than $125k
  • Canceling $10,000 for student loans*

In addition to voicing support for loan cancelation, President Biden has suggested further changes to the student borrowing rules. When federal student loan forbearance expires at the end of September, the rules may have changed. Proposals include capping payments at 5% of discretionary income, forgiveness after 20 years of qualifying payments, and other provisions.

*Such a provision was notably left out of Biden’s stimulus proposal

With such a narrow majority in the Senate, where many bills ultimately require a 60-vote supermajority, some of his more ambitious plans are unlikely to be implemented. Policy experts say the changes to personal finance will probably not be on par with the TCJA 2017. Instead, expect subtle, mostly symbolic tweaks.

Please note that the topics of tax, education, and investment planning are highly individualized and dependent on your personal financial situation, so always consult an appropriate specialist before making any decisions. The information above is intended to be a discussion starter and does not constitute financial advice or recommendations.

Cox Capital Expands Research Team With Addition of UML Grad

Cox Capital Management is pleased to announce the addition of recent UML graduate Harrison Oakes. Oakes joins CCM with a degree in business administration with concentrations in finance and accounting. With a near perfect GPA, he will take on the role of research analyst, assisting portfolio managers with investment decisions, research and portfolio evaluation. Oakes is no stranger to CCM. He joined the firm as an intern in the spring of 2019. Over that time, the Reading, MA native demonstrated a deep understanding of financial markets and a knack for evaluating stocks. “Harrison is going to be a great addition to our team. We know that ultimately our clients will benefit from his great analytical talents,” added CCM founder Bill Cox. He continued, “By reinvesting in cutting edge technology and top tier talent like Harrison, we are demonstrating our ability to be a future-ready firm.” Oakes’ education will not end anytime soon. He plans to pursue his CFA Charter, a well-respected designation in the field of finance, and ultimately obtain his MBA.

Cox Capital is an investment management and financial planning firm based out of Andover, MA. Bill Cox started the firm in 1997 after working in the investment industry for nearly two decades. The aim of the firm is to bring high quality money management abilities to the local level. Over the years, Cox Capital has evolved more broadly into a wealth management group, offering financial planning services to all clients. Tunde Kovacs, PhD and professor at UMass Lowell, joined CCM as a consultant in 2018, bringing great insights to the firm’s investment committee. In January of 2020, Ethan Brown became a Partner of the firm, solidifying the firm’s succession plan. With the addition of Oakes, Cox Capital reinforces their commitment to research and investing in the future.

Coping With the Pandemic Outside of Cox Capital

We are checking in to let everyone know that there is life beyond the pandemic! While we enjoy what we do and take our responsibility to our clients very seriously, we also know that it is healthy to have outside interests, to stay active, and to de-stress from time to time. Our clients deserve the best from us, and part of that is maintaining balance to prevent burnout. Here’s what we’ve been up to:

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Prudhvi Chandu Joins Cox Capital Management as Research Intern

Prudhvi Chandu joins CCM.

Cox Capital is pleased to welcome Prudhvi Chandu of Dracut, MA as the latest addition to the UMass Lowell Internship Program. Prudhvi is a graduating senior at UML with a degree in Finance. One of the top students in his class, Prudhvi demonstrates strong analytical abilities and knowledge of several computer programming languages. His desire to learn about and understand financial markets makes him a perfect fit for Cox Capital’s Internship Program. Prudhvi’s main roles at Cox Capital include analyzing client fixed income portfolios, researching corporate and municipal bond investments, and creating research models. Additionally, Prudhvi is responsible for authoring a weekly newsletter highlighting recent economic news and interest rate movements. “Prudhvi is a very bright young man and will be a tremendous asset for our team during his time with us,” said Cox Capital Management founder Bill Cox. Finally, Prudhvi has already passed the Level I CFA examination and plans to pursue a career in wealth management.

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