While consumers can expect corporate tax dodges—tax inversions—to continue, individual tax rates are on track to climb, economists participating in Prudential Annuities' Power Hour webinar warned yesterday.

To make tax reform work, the rules governing individual tax payers will have to be “decoupled” from those affecting corporate America. And, those individual rates will “probably have to go up,”  said Andrew H. Friedman, principal of The Washington Update, a political affairs publication.

Clients have to accept and anticipate that rates will be rising and shun short-term mutual funds for more tax efficient products that will defer tax obligations until they're older, such as IRAs, variable life or variable annuity funds, said Friedman.

“Deferring taxes is a wonderful idea,” agreed Edward F. Keon Jr., managing director and portfolio manager for Quantitative Management Associates, a wholly-owned subsidiary of Prudential Investment Management. The one-hour webinar, entitled "Staying Ahead of the Curve: Unconstrained Investing in a Rising Tax Environment," focused on the outlook for the global investment landscape and the risks ahead.

Overall, their investment outlook was reassuring. Keon said he's reinvesting more of the cash he was  holding back as portfolio manager of QMA. He said he was too pessimistic regarding bonds, compared to his colleagues at Pru. But he is still more attracted to stocks and other assets. QMA has a large research group to help with quantitative selection and employs quantitative techniques to weigh risk/reward scenarios. As a result, Keon said, he is more confident of the long view on the economy. “With the exception of the post-crisis adjustments, government doesn't make instant changes,” he said, adding that “sound fundamental practices” are more the norm.

Globally, QMA has been managing more money back into the U.S., Keon said. “The U.S. is like a growth stock. Investors will pay a premium price because prospects are better and more certain. We have more entrepreneurs and innovation here,” he said. And the rising oil supply has increased production in the U.S., he added.

The U.S. dollar is also having a positive impact on corporate earnings, he noted, adding that this trend should impact fourth quarter and 2015 earnings. The dollar's rise “means U.S. consumers can buy more outside the U.S. and it holds down the prices of U.S. goods,” he said. Fears of China selling off U.S. treasury bonds when interest rates rise are probably unfounded, Keon added, since China needs bond stability for its own currency.  

The global political picture is darker due to crises that could rock the markets. ISIS, the ebola outbreaks, further attempts by Russia to extend its control over Ukraine and beyond or more flareups in the Middle East would all cost money should the U.S. get involved. The dramatic downturn in the U.S. deficit was largely due to drastic cuts in defense spending, noted Friedman. “I don't believe it's feasible to think we can be involved with conflicts and keep cutting defense," he said. "The options will be to raise taxes, shift money from domestic spending or increase borrowing.”

Still, Friedman believes any of three scenarios—he called them "forcing events"—could get the U.S. mired in another conflict: ISIS-style terrorism here, in Israel or in a NATO country.

Domestically, the national debt and the deficit ceiling are also forcing events on Friedman's list. Given the fiscal cliff, Congress did raise the ceiling, he noted. But he thinks the mid-term elections, which he expects will see Republicans gain a majority in the Senate and, helped by gerrymandering, keep its lead in the House, will clear the decks for dealing with the larger issues of Medicare and Social Security. Consequently, some consensus may materialize.

But compromises will likely result in later Social Security eligibility and means testing, which would again underscore investors' need to hold onto savings and protect gains from tax erosion.