Adjusting portfolios and financial plans before year-end to save on taxes is no longer the hot topic that it was before the presidential election.
The expected Democratic sweep, which would have increased the likelihood of tax increases for high income earners next year, didn't happen. At best, the Democrats will have a very slight majority in the U.S. Senate if they win both Senate runoff elections in Georgia on Jan. 5, and only because the Democratic vice president could break a tie vote.
"There is a potential for some tax changes … through reconciliation, which requires only 51 votes," said Andrew King, vice president of tax policy and research at Ayco, a Goldman Sachs company specializing in financial planning. But he cautions advisor clients "to look before you leap … Consider the overall situation before you go forward. We don't know what's going to happen, what tax changes could look like … We only have proposals now."
If the Democrats fail to win the two Georgia Senate seats, it will be very difficult for Congress to pass federal tax hikes.
Tax rates at the state level, however, could rise because of large budget shortfalls that many states are experiencing due to the decline in tax revenues and increases in spending as a result of the pandemic. "States may need to raise revenues by raising taxes," said King, who spoke in a private personal finance management roundtable.