As the dust from the midterms has mostly settled, we can turn our attention to the results and their likely impacts on taxes for the next two years.
On a national level, the Democrats gained a seat in the Senate and in the House, Republicans gained eight seats. This split control is likely to result in less legislation getting passed in 2023 and 2024. Extensions related to the Tax Cuts and Jobs Act of 2017 will be hard to pass so at present the sunset provisions that are scheduled for the end of 2025 may come to pass. The likely result is that your clients will see increased taxes.
Democrats’ hopes to increase minimum taxes on corporations and to add surtaxes on high-net-worth individuals are likely to stall as well. Using these increases to pay for social programs and to increase enforcement by the Internal Revenue Service are likely also on hold. I don’t expect any efforts to increase the top tax rates, repeal tax breaks for oil and gas producers, or end tax deferrals on gains from like-kind exchanges to come to a vote in the next two years.
The sum of all of this is we are looking at two years of good old-fashioned gridlock in our nation’s capital.
Looking at state issues we do see more movement, some of which is rather surprising.
California defeated Proposition 30.This measure sought to raise income taxes by 1.75% on those earning more than $2 million a year between 2023 and 2043. The revenue was slated to be used to fund a zero-emission vehicle program.
On the other side of the country, voters in Massachusetts approved Question 1 which adds a 4% surtax on those with incomes greater than $1 million a year. This brings the top rate in the state to 9%. An interesting note on this tax is that the increase isn’t limited to earned income. It also includes one-time events such as the sale of a home or business. Fair Share Massachusetts raised more than $31 million in support of the bill. This is now written into the state constitution, so this is not likely to change any time soon.
Florida voters defeated two amendments. The first, Amendment 1 would have kept property tax levels at their prior amounts if an owner made improvements to protect their property during floods. The second, Amendment 3 would have provided police officers, teachers, military personnel and others an additional exemption on the assessed value of their property.
Arizona passed Proposition 130, providing property tax exemptions for disabled veterans.
Colorado passed Amendment E to give property tax breaks to surviving spouses of military personnel who either died in combat or due to injuries and illnesses sustained in military service.
So, at a national level expect a lot of posturing but not much in the way of results. Expect more activity at the state level where direct votes have more on an impact.
John M. Gehri, CFP, ChFC is a licensed investment advisor representative with Harvest Financial Advisors in the Cincinnati/West Chester, Ohio area. He may be reached at firstname.lastname@example.org. This article is for informational purposes only. Any commentary and third-party sources are believed to be reliable but Harvest Financial Advisors cannot guarantee their accuracy.