With federal budget deficits headed higher and taxes for affluent Americans at their highest levels in 35 years, it is unlikely that the next administration will raise income tax rates to plug the holes in the budget.
Instead, it is far more likely that Congress will seek to eliminate loopholes that well-off taxpayers take advantage of, as it did in December, when it nixed the popular "file-and-suspend" techniques favored by married couples. That technique will end April 30.
That was the message of Andy Friedman, proprietor of The Washington Update, speaking in New York City Tuesday at the annual IMCA Investment Consultants conference.
Nobody in the presidential campaign is talking about budget deficits, but they are turning up for the first time in six years. "We'll see a parade of loophole closings," Friedman predicted.
Why wouldn't Congress raise marginal tax rates before 2020? Republicans are likely to maintain control of Congress until then. Friedman believes gerrymandering has reached the point where only 12 congressional seats are considered toss-ups in 2016. Moreover, some Democrats believe that marginal tax rates are as high as they should be.
Friedman said Congress was unlikely to eliminate the mortgage interest deduction. However, it could well consider terminating techniques favored by advisors, such as curtailing stretch IRAs for transgenerational wealth transfer and mandating required minimum distributions for Roth IRAs.
The effect of this wouldn't end Roth IRAs, but it would place a limit on the number of years clients could shelter money in these vehicles before making the assets taxable again.