Potential tax policy changes aimed at paying for President Biden’s infrastructure plans are currently hot topics in Washington, DC and among high-income earning households across the US. To provide insight on the viability of Biden getting his plans passed, along with what it may all mean for investors’ portfolios, Susan Olson, Government Relations at Natixis Investment Managers, sat down with Curt Overway, President and Portfolio Manager at Managed Portfolio Advisors® and Active Index Advisors.®

Here are highlights from their conversation:
  • President Biden has proposed two infrastructure plans. One is called the American Jobs Act, and the second is the American Family Plan. Together they total over $4 trillion, to be paid for by various hikes in taxes.
  • Raising corporate taxes from 21 percent to 28 percent has been proposed to pay for much of the American Jobs Act. But with the margins that the Democrats have in both houses of Congress razor-thin, how realistic is it that President Biden is going to be able to get that proposal in corporate taxes through?
  • Tax changes most relevant to investment portfolios or typical investment portfolios include the raising of the top income bracket from 37 percent back up to the 39.6 level that was in place before the Tax Cuts and Jobs Act went into effect. That would apply for households over $400,000. Also, for households earning more than $1 million, capital gains and dividends would be taxed at the ordinary income rate. Currently, the top capital gains and dividend rate is 20 percent. All together, some high-income households could see a tax increase at the federal level from 23.8 percent to 43.4 percent.
  • Biden has also proposed eliminating the step-up in basis upon death for estates with a $1 million per person exemption.
  • The impact taxes have on investment returns is often underappreciated by many investors. Even at current tax rates, taxes have a big impact on investment returns.
  • Separately managed accounts were once limited to just really ultra-high net worth investors and institutional clients that have long used that vehicle. But over time they’ve become much more accessible to other investors. And they’re also easier to access now through the advent of these programs called unified managed accounts.
  • When you look at direct index strategies, which are index-based separately managed accounts, typically those fees are a little bit higher than the very low fees of index funds and ETFs. But the tax benefit can be really substantial, and far more than offsets that modest difference in fees.
IMPORTANT INFORMATION
The views and opinions expressed in this podcast are those of the speaker and not necessarily those of Natixis Investment Managers. These views were provided as of the date of recording and will not be revised. The information contained in this podcast does not constitute investment advice or an offer to buy or sell a financial product from any Natixis Investment Managers entity.

Natixis Investment Managers does not provide tax or legal advice. Please consult with a tax or legal professional prior to making any investment decisions.

This material is provided for informational purposes only and should not be construed as investment advice. There can be no assurance that developments will transpire as forecasted. Actual results may vary.

CFA® and Chartered Financial Analyst® are registered trademarks owned by the CFA Institute.

Natixis Advisors, L.P. provides discretionary advisory services through its divisions Active Index Advisors®, Managed Portfolio Advisors® and Natixis Investment Managers Solutions-US. Discretionary advisory services are generally provided with the assistance of model portfolio providers, some of which are affiliates of Natixis Investment Managers, LLC.

3578060.1.1