CINCINNATI, Oct. 13, 2016 /PRNewswire/ -- The year George Washington was elected President of the United States, Benjamin Franklin wrote, "In this world nothing can be said to be certain, but death and taxes." But he never said which taxes. And as voters head to the polls this November, that uncertainty still remains.
In a new roundtable discussion, Fifth Third Bank (NASDAQ: FITB) seeks to ease such uncertainty by offering insights from investment industry experts. The general consensus offered by veteran economist Joe Gagnon, wealth planner Melissa Register and investment strategist Jeff Korzenik is that while both presidential candidates propose significant changes to the tax code, smaller policy changes are a more likely outcome.
"Tax questions in election years often spark fears of higher levies and lower exemptions, which can make planning for the future difficult," says Register, senior wealth planner from Fifth Third Private Bank in Cleveland.
This year is no different. Democratic candidate Hillary Clinton has said that her administration would raise taxes on the wealthiest households, while restricting deductions on a means-tested basis, and extending the holding period required for investments to qualify for the capital-gains tax rate. Republican candidate Donald Trump has made a number of tax proposals on the campaign trail, including a plan to cut the number of tax brackets, and to dramatically increase standard deductions.
"There's some really healthy things that will come out of this election no matter who is elected," adds Korzenik, Fifth Third Private Bank's Chief Investment Strategist.
Big Reforms Face Uphill Battle
But large-scale changes to the tax code may not be in the cards, says Danielle English, government affairs officer for Fifth Third Bank in Washington, D.C. "Regardless of the outcome at the top of the ticket, it is still difficult to predict the terms of a congressional agenda."
Michael Donovan, a Fifth Third wealth management advisor in the greater Chicago area, says that when clients come to him with fears about changes to the tax code, he advises them not to expect any big changes immediately after the election. The kind of policy changes that are meaningful to his clients will often find their way into legislation without much fanfare. He cites the recent change in Social Security file-and-suspend rules as an example.
In addition, Donovan says many of his clients fear that the tax-free growth in a Roth account will eventually be taxed if the government comes to need the revenue. "Many of my clients don't want to convert into a Roth for that reason," he observes.
The American Taxpayer Relief Act of 2012 went a long way toward setting a fairly stable consensus about many elements of the tax code, such as the estate tax, after many years of intense debate, says Melissa Register, a senior wealth planner for Fifth Third Private Bank in Cleveland.
It's All About the Details
While large-scale tax reforms may be unlikely, the election and any changes it brings to the balance of power in Washington may have the biggest impact on the little things.
Business taxes, which don't often make headlines, are one area where uncertainty is causing some owners to suspend their long-term planning. Glen Johnson, managing director at Mirador Family Wealth Advisors, has many business owners among his clients, and they are very close watchers of corporate tax policy reform.
As more U.S. companies choose to domicile in countries with lower taxes, corporate tax policy has become a political football. To reduce the appeal of overseas tax havens, Clinton would levy "Exit Taxes" on companies who leave the U.S., while Trump has proposed capping the tax on business profits at 15%. Regardless of who wins the election, either plan is likely to face fierce debate in Congress.
While proposed changes to personal income tax rates draw a lot of attention, other important elements of tax policy tend to go unnoticed, Register says. That's especially true for the sophisticated techniques that tax planners often use. But the IRS is very aware of those provisions, and is always looking for new revenue. That's why Register worries about what she calls "death by 1,000 cuts." For example, lawmakers have had their eyes on a number of lesser-known planning techniques such as grantor retained annuity trusts, or GRATs, for years.
"The ability to use these techniques could disappear very quickly; it goes up in a bill, and boom, it's passed. Advisors need to be aware when those are on the chopping block," she says.
Beyond the speeches and the party platforms, it's in the under-the–radar provisions, deductions, exemptions, exclusions and policy tweaks that the election will likely have its most profound effect on the tax code.
For more on the potential impacts of Election 2016, Fifth Third Private Bank has compiled a helpful guide at http://investing.53.com/FifthThirdPrivateBankElectionOutlook2016. The five-part video and article series explores the major issues on the line this November, and how the election may affect retirement, the economy, investment strategies, taxes, and creating or preserving wealth for the next generation for years to come.
About Fifth Third
Fifth Third Bancorp is a diversified financial services company headquartered in Cincinnati, Ohio. The Company has $144 billion in assets and operates 1,191 full-service Banking Centers, including 94 Bank Mart® locations, most open seven days a week, inside select grocery stores and 2,541 ATMs in Ohio, Kentucky, Indiana, Michigan, Illinois, Florida, Tennessee, West Virginia, Pennsylvania, Georgia and North Carolina. Fifth Third operates four main businesses: Commercial Banking, Branch Banking, Consumer Lending, and Wealth and Asset Management. Fifth Third also has an 18.3% interest in Vantiv Holding, LLC. Fifth Third is among the largest money managers in the Midwest and, as of June 30, 2016, had $305 billion in assets under care, of which it managed $26 billion for individuals, corporations and not-for-profit organizations. Investor information and press releases can be viewed at www.53.com/. Fifth Third's common stock is traded on the Nasdaq® Global Select Market under the symbol "FITB." Fifth Third Bank was established in 1858. Member FDIC, Equal Housing Lender
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