A Questionable Revenue Generator?
What also seems unappealing about this aspect of the proposed tax bill is that it seems to be an asymmetric adverse outcome for the retiree. In other words, it may be bad for middle class investors/taxpayers/retirees and neutral for the government in terms of tax revenue. The retiree could be adversely impacted by the requirement to liquidate more assets early in retirement to cover the additional tax liability, decreasing the probability their assets could last through retirement. From the government’s perspective, however, the difference in revenue ultimately collected seems likely to be negligible, it is just a matter of timing. If all assets are liquidated, taxes will be paid on all unrealized gains. In fact, in some scenarios, tax revenues might be enhanced by not forcing the retiree to liquidate as much of their assets, allowing more money to remain invested and appreciate, leading to a larger realized gain and more tax revenue than if those assets were liquidated earlier.
Ready, Set, Debate
While debate among senators and their constituents has continued through the Thanksgiving holiday, a final vote on the tax proposal could take place by the end of November. Any final Senate bill will then have to be reconciled with the tax reform proposal recently approved in the House. Regardless of what shape the final tax reform bill takes, financial professionals and their clients should be aware of any potential changes to the tax liabilities faced by individual investors if and when they chose to sell shares out of taxable brokerage accounts.
Curt Overway is president and portfolio manager with Managed Portfolio Advisors, a division of Natixis Advisors L.P. Based in San Francisco, California, Managed Portfolio Advisors offers overlay management, product development and portfolio construction capabilities. Mr. Overway is also the president of Active Index Advisors, another division of Natixis Advisors L.P. also based in San Francisco, California, which specializes in managing index-based separate account solutions.
Prior to joining Natixis, Mr. Overway was a vice president and principal at Jurika & Voyles, an investment management firm. Previously, he worked as a financial analyst in the Municipal and Corporate Financing group at USL Capital. Mr. Overway has more than 20 years of investment management experience. He received a B.S. degree in industrial and operations engineering from the University of Michigan and an M.B.A. from the Haas School of Business at the University of California, Berkeley. He also earned an M.S. degree in development finance from the University of London. Additionally, he has served as an officer in the U.S. Navy. Mr. Overway is a CFA charterholder and is a member of the CFA Society of San Francisco.
Mr. Overway was selected for Separate Accounts Player of the Year for 2006 by the Institutional Investor News Publishing Group, based particularly on his work with multiple discipline products. He was also nominated for the same honor in 2004.
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