Legal Developments

Democrat legislators are working on legislation that would nearly double the top individual U.S. tax rate to 59% on the highest incomes.  The bill would increase capital gains rates to equalize them with income taxes and move to a so-called mark-to-market system.  That would require individuals to pay tax annually on the appreciation of their investments, real estate and business holdings.  The legislation, which is slated to be introduced in January, would mark a significant tax increase, particularly for high-income earners and those who earn their money from investments.  The legislation adds to the trove of tax ideas that Democrats are preparing if they should sweep the House, Senate, and White House in the 2020 elections.  They are considering large tax increases that could fund expanded social services, including health care, renewable energy investments, and education.

Economic Observations

Economic and financial analysts are all focused on trade, with the prospects for a trade pact with China impacting the financial markets on a daily basis.  Business leaders are on hold deploying capital until those prospects become clearer, which is softening our domestic economy.  Consumer confidence though is high, with existing home sales rising for the third time in four months.  All of this has led the Fed to stand pat, with the committee divided over interest rate policy.  The Fed signaled it was on hold after its last meeting, which is at odds with the lower rate policy President Trump would like to see from the Fed.  Should Trump win a trade pact with China, however, the Fed would have less reason to ease policy with a likely return to higher interest rates.  This would particularly be the case if Trump pressed for and won a middle-class tax reduction.