Obama's budget gives advisers plenty to watch

President would tax wealthy to pay for 'middle-class' gains, SEC gets budget boost

Feb 2, 2015 @ 1:13 pm

By Mark Schoeff Jr.

President Barack Obama released a budget Monday that gives advisers plenty to monitor over the next few months as negotiations around the proposals begin anew with a Republican Congress.

Here are some items in the nearly $4 trillion fiscal 2016 spending plan that could have an impact on advisers and their clients:


Mr. Obama wants to raise taxes on capital gains to 28% from the current 23.8%. He also would eliminate stepped-up basis on inherited assets, meaning that heirs would have to pay capital gains on the amount that the assets grew while held by the decedent.

The capital gains reforms would raise $208 billion over 10 years. The amount raised would fund Mr. Obama's “middle-class economics” initiatives that include paid sick leave, higher tax credits for people with children and two years of free community college.

“Right now, our tax code is full of loopholes for special interests — like the trust fund loophole that allows the wealthiest Americans to avoid paying taxes on their unearned income,” Mr. Obama said in a speech in Washington on Monday. “I think we should fix that and use the savings to cut taxes for middle-class families. That would be good for our economy.”


What Mr. Obama didn't mention is that wealthy families already pay the estate tax, which makes his stepped-up basis proposal a tough sell to a GOP Congress.

“If you don't have stepped-up basis, then assets that are passed on at death are taxed twice,” said Andy Friedman, principal at The Washington Update.

The most striking aspect of Mr. Obama's proposal is that it would eliminate stepped-up basis for bequests and gifts, said Tim Steffen, director of financial planning at Robert W. Baird & Co.

“That's going to change all the financial-planning strategies out there,” he said.


Other tax proposals in Mr. Obama's budget are re-runs from previous proposals, such as limiting tax deductions and exclusions to 28% and imposing a “Buffett Rule” that would ensure that the wealthy pay no less than 30% of their income in taxes.

Even though Mr. Obama's plan will meet stiff resistance from the Republican-led House and Senate, the ideas still merit attention, Mr. Steffen said, because they could come up in broad tax reform.

“It's reasonable to assume that some aspects of the president's budget will find their way into a final tax bill that both parties can agree on,” he said. “We just don't know which ones. You can't look at this and just completely dismiss it.”


Under Mr. Obama's budget, the Securities and Exchange Commission would receive a 15% budget boost, to $1.7 billion from $1.5 billion. The funding would in part support the hiring of 225 additional investment-adviser examiners in the Office of Compliance Inspections and Examinations, the agency said. The extra personnel would allow it to boost annual exam coverage of the approximately 11,500 registered investment advisers from the current 10% to 14%, the SEC said.

“There remains an immediate and pressing need for significant additional resources to permit the agency to increase its examination coverage of registered investment advisers and investment companies so as to better protect investors and the nation’s securities markets,” the SEC said in its fiscal 2016 budget request.

The SEC has traditionally been denied most of its budget requests by congressional Republicans, although it did achieve a $150 million budget boost for the current fiscal year. The SEC used that extra funding to hire an additional 72 investment-adviser examiners.

Although Congress sets the SEC budget each year, the agency’s operations are funded through securities transaction fees. The amount of the SEC budget does not affect the federal budget deficit.


What do you think?

View comments

Upcoming event

Nov 19


New York Women Adviser Summit

The InvestmentNews Women Adviser Summit, a one-day workshop now held in six cities due to popular demand, is uniquely designed for the sophisticated female adviser who wants to take her personal and professional self to the next level.... Learn more

Most watched


How the 2020 elections could impact ESG investing

Joseph Keefe, president of Impax Asset Management, on the elections and how advisers can build a bridge to the next generation of clients with ESG investing.


How advisers can be a gamechanger for women investors

Why women defer to men when it comes to finances and how advisers can combat this phenomenon and make a difference for female investors, according to Heather Ettinger, founder and CEO Luma Wealth Advisors.

Latest news & opinion

Schorsch, AR Capital to pay $60 million to settle SEC charges

The former REIT czar and his firm wrongfully obtained millions linked to REIT mergers.

CFP Board postpones enforcement of its revised fiduciary standard

Board's new Code of Ethics and Standards to be enforced next June, in line with the SEC's Reg BI

Charles Schwab reportedly in talks to buy USAA brokerage, wealth management business

The deal would net Schwab roughly $100 billion in new assets.

Advisers scramble to help retirees navigate looming Fed rate cut

The Fed's first interest-rate cut in a decade has advisers warning against chasing the bait of risk over safety.


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print