Foresee the Economy Under the Bush Administration

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Physician's Money Digest, January15 2005, Volume 12, Issue 1

President Bush's decisive election victoryon Nov. 2, 2004, has given himthe confidence to push forwardwith his key agenda strategy, and theresults will undoubtedly affect your wallet.So, what is likely to happen in the nextfew years and how can you benefit fromany of the changes?

Estate Taxes

What you

should do:

During his first term in office, thepresident signed legislation that significantly reduced the taxes on largerestates by both increasing the amount ofwealth exempt from taxation and reducingthe tax rates. His original goal wasthe complete elimination of estate taxes,but at that time he did not have enoughvotes to pull it off. As a result of the election,the Republicans gained four seatsin the Senate, giving them a strongmajority (54 seats), but this still fallsshort of the 60 votes needed to guaranteepassage of new and permanent legislationending the estate tax. The largedeficit accrued—mostly as a result of thewar in Iraq—also makes elimination ofthe estate tax unlikely during the remainingyears of the Bush administration.However, it is very likely that this administrationwill address the current estatetax dilemma by passing a larger and permanentestate tax exemption. For those whose estates needliquidity for estate taxes, their best bet isto buy level term life insurance that isconvertible into permanent life insurance.This gives them an inexpensiveoption on needed liquidity until theyknow the actual final legislation, which Isuspect will be out by the end of 2006.

Income Tax Laws

What you should do:

President Bush says that one of thebest ways to stimulate our economy isthrough across-the-board income tax cuts,based on the assumption that if taxpayershave more money they will spend moremoney, and thus further stimulate oureconomy. His first priority is to make permanentthe tax reductions passed duringhis first administration. He also believesthat our current income tax system ismuch too complicated, so he is proposingsweeping changes to the system.Minnesota Republican Congressman GilGutknecht and 50 fellow members ofCongress are promoting the eliminationof federal income taxes as well as theelimination of the IRS, while instituting a23% federal sales tax to replace the lostrevenue. Others are promoting a flat tax,while still others are recommending avalue-added tax. While the outcome isuncertain, significant changes are likely.Every kind of taxdeduction is likely to be more valuablethis year (and perhaps next year) than inthe years ahead. Consider acceleratinggifts to charities this year while postponingtaxable income into future tax years.

Investment Outlook

What you should do:

So far, stock market investors haveexpressed joy over President Bush's reelection.Bush and the Republican party havelong been considered friends of corporateAmerica, and the business communityshould continue to thrive under thisadministration. President Bush favored abolishing taxationof corporate dividends and during hisfirst term he signed legislation limitingfederal taxes on corporate dividends to15%. His reelection all but guarantees thislaw will become permanent. Investorsshould seek out solid companies who havea history of sharing their profits with theirshareholders in the form of dividends.

®, AEP,

is the founder of The Welch

Group, LLC, which specializes

in providing fee-only wealth

management services to affluent

retirees and health care professionals

throughout the United States. He is the

coauthor of J.K. Lasser's New Rules for Estate

and Tax Planning (John Wiley & Sons, Inc;

2001). He welcomes questions or comments at

800-709-7100 or visit www.welchgroup.com.

This article was reprinted with permission from

the Birmingham Post Herald.

Stewart H. Welch III, CFP