Daily Commentary

MarketMinder’s View: As this article details, Republicans’ highly anticipated tax plan is taking shape—though it is a “struggle.” Also please note here that MarketMinder is strictly nonpartisan when evaluating prospective legislation, caring about its potential economic, market and personal finance implications only. The broad outlines so far: “House Republicans on Wednesday unveiled a plan that would cut taxes by about $4.5 trillion over a decade, raise the federal government’s debt ceiling by $4 trillion -- clearing the way for the nation’s liabilities to exceed $40 trillion -- and find $2 trillion in cost cuts over a decade in mandatory spending programs. While the plan did not specify what programs would be targeted, that could include the Medicaid health program for low-income Americans and Social Security and Medicare for the elderly. It was not immediately clear if the plan would have enough support to pass the chamber, where Republicans hold a thin 218-215 majority. ... House Republicans are split between lawmakers from Democratic states who want a bigger federal tax deduction for state and local tax payments, hardliners pushing offsetting spending cuts and centrists worried about the potential ill-effects of those cuts back home.” If that sounds like a recipe for watered-down ambitions, the rest of the article describes the give-and-take at play, including possible stopgap funding bills to sidestep mid-March’s debt-ceiling deadline. This also highlights the House and Senate GOP’s different approaches: “House Republican leaders are proceeding toward a resolution that calls for including the entire Trump agenda, including tax cuts, in a single piece of legislation. Senate Republicans are also moving ahead this week with a two-bill strategy that would quickly enact Trump’s border security, military and energy priorities while leaving the thornier tax issues for later this year.” Tax uncertainty can present headwinds, but clarity is gradually emerging. For investors, markets pre-price various scenarios along the way, and given Republicans’ narrow majorities—and intra-party disagreements—what they accomplish will probably be less radical than many may cheer or fear. In our view, all the attention helps dampen negative surprise power, so while the process is worth watching, don’t fret it.

MarketMinder’s View: Despite its inevitability, tax time is often bewildering. With the morass of ever-shifting rules coupled with changing life circumstances, confusion is understandable. Doing your taxes is a chore, and it is tempting to procrastinate. So, whenever a handy guide appears, we like to point it out to help make the process less onerous. This one looks at taxes from investors’ perspective, offering advice on how to navigate “favorable tax rates on investment income such as capital gains and many dividends. With these rules, details matter. The difference between a 15% and a 24% tax rate on a capital gain can come down to holding it one day longer. Selling losers to offset gains from winners can also reduce taxable gains for the year—if the investor remembers to.” The article offers a quick overview of capital gains taxes (short- and long-term), dividend taxes (qualified- and non-qualified) and some special situations, including the 3.8% surtax on high-MAGI (modified adjusted gross income) households. If you have dabbled in cryptocurrencies, note that “The law treats cryptocurrencies as property, not currencies, and views them as investments similar to stock or real estate. If cryptocurrency is held in a taxable account rather than a retirement account, then profits from sales are typically taxed as long- or short-term capital gains, and losses can be used to offset gains. The use of cryptocurrency to make a purchase can also trigger a taxable event that must be reported.” Lastly, how do you treat inheritances and gifts? Inheritors of investment assets enjoy a “tax-free step-up in basis,” meaning an asset’s price at death becomes the beneficiaries’ cost basis and “their taxable gain or loss will be based on the change in the price between the date they inherited and the date of sale.” Then on gifts: “The annual gift-tax exclusion per donor, per recipient is $18,000 for 2024 and $19,000 for 2025. Annual gifts aren’t deductible for income-tax purposes, and the gifts aren’t taxable income to the recipient. However, the ‘cost basis’ of the investment carries over to the recipient.” Hopefully, this guide—and accompanying examples—are useful, but as always, consult a tax professional for questions regarding your specific situation.

MarketMinder’s View: Once again, please note MarketMinder is politically agnostic and doesn’t prefer one party or politician over any other. We seek only to assess political developments’ potential market effects, if any. Four months after winning a plurality, Austria’s far-right Freedom Party, led by Herbert Kickl, hasn’t been able to assemble a government. After negotiating with the conservative People’s Party without success, Kickl kicked the government formation process back to President Alexander Van der Bellen, who “will invite politicians for discussions in the coming days to decide how to proceed.” Back at square one, Van der Bellen “can offer centrist parties a second chance to form a government after an initial round of negotiations failed in January. He could also try to appoint a cabinet of expert ministers backed by some parties, or a minority government. Snap elections may also be an option, but they would need to be triggered by parliament. So far, only the Freedom Party has backed this option.” In the meantime, the article frets, “The coalition-building process that ensued is now the longest in Austria’s history, and will likely weaken trust in the country’s elite, which has already been undermined by years of corruption scandals. ... The development also adds to the perception of growing political risk across Europe.” Markets, though, don’t seem too perturbed. Per FactSet, the MSCI Austria Index hit record highs today in euros and just below in dollars, outperforming the World Index year to date in both currencies (the MSCI Europe Index is leading the world, too, by the way). The specifics of Austrian government control may be in doubt, but fragmented legislatures mostly spell gridlock—which stocks are fine with.