Obama Rejects House’s Proposed 90% Tax Bracket
In Sunday’s “60 Minutes” interview President Obama shot down the House’s proposed 90% tax bracket on bonuses from employees of companies who receive bail out money by saying,
“As a general proposition, you don’t want to be passing laws that are just targeting a handful of individuals. You want to pass laws that have some broad applicability … you certainly don’t want to use the tax code to punish people.”
Notice that he did not condemn the concept of a 90% tax bracket. Obama has proposed a tax increase that increases the current 35% top tax bracket to 39.6%. If President Obama follows Franklin Delano Roosevelt’s lead, these tax increases may be only the beginning of a new wave of income tax increases. In 1932, and again in 1936, when faced by budget deficits caused by the Great Depression, FDR increased the top tax bracket from 25% to 79% (Source: IRS Website).
When helping clients plan their future income, annuity producers should discuss the possible income tax effect of this income, and whether annuities can help reduce these taxes. Annuities can help your clients in the following ways:
1) Taxes on interest can be deferred to a time when the client is in a lower tax bracket
2) SPIA (Single Premium Immediate Annuities) that are funded with non-qualified money can produce income that includes a tax-free return of principal
3) Although all the income from Lifetime Income Riders is 100% taxable, even from non-qualified money, those who desire a guaranteed lifetime income can lock in a high, fixed interest rate for the rest of their life
If history repeats itself, and Congress raises taxes back to the 90% tax bracket for unearned income (meaning, non-wage income), annuities have the potential of causing your clients to pay massive future taxes. Explain to your clients the problem that they may have if they defer the taxes until they die, when all the accrued interest becomes payable in a lump sum. If they want to leave their heirs a tax-free lump sum at death they perhaps should purchase a life insurance product instead of an annuity.
The point is that “taxes” is a hot topic right now, and is the perfect door-opener to tell your story to your clients, prospective clients, and their income tax advisors.