Six Investments to Beat the Biden Tax Bite
The Taxman is coming, and he is hungry.
U.S. President Joe Biden and his gang of big government associates have unveiled a budget that comes in at a whopping $6 trillion. There’s something for everybody in this package – with tax credits, giveaways, and government programs of all shapes and sizes.
This Biden Bacchanalia would make Franklin “The New Deal” Roosevelt and Lyndon “The Great Society” Johnson flush with envy. President Biden is laying out one of the most “progressive” budgets anyone has seen since the 1960s. Even Jimmy Carter couldn’t have dreamt all this up.
Want some examples? I’m talking about:
- Free school for some folks from pre-school up through college.
- Two years of community college free for everybody.
- A full $1 billion increase in food stamps.
- Massive tax breaks for electric vehicles.
- Big bucks for renewable energy.
- And yet another infusion for healthcare.
Nothing comes for free. And that includes the Biden spending plan, which creates a deficit of $1.8 trillion this year and $1.3 trillion a year over the next 10 years – resulting in a national debt of $39 trillion (117% of projected GDP) by 2031.
Here’s the problem.
Somebody will have to pay for all this.
That “somebody” is you and me.
And those payments can be made only one way – through higher taxes.
Ruthlessly higher taxes.
Welcome to the “Biden Tax Bite.”
And there’s only one way to beat it – by getting out in front of it.
The Tax Terror Looms
Taxes will be raised, and there will still be a deficit of almost $2 trillion. That means that after the budget is passed, there will still need to be more taxes added down the road.
Biden has promised that the taxes will hit corporations and the wealthy.
But anyone who believes we won’t feel the squeeze from those tax hikes is the worst kind of fool.
Businesses will pass those increases on to us in the form of higher prices.
Cryptocurrencies will lose their “free-as-the-breeze” status.
Capital-gains hikes will play havoc with stock prices.
That retirement nest egg may look a lot smaller up close than it did 10 years before the “Golden Years Finish Line” – courtesy of lower after-tax income and scythed away securities gains.
Even the 2017 tax cuts passed by the Trump Administration will all expire.
The stepped-basis-at-death rules – the ones that let parents transfer assets to their kids with a basis on the day they died, instead of on the day the stock or house was purchased – will also disappear as Washington hunts for loose change in the dust under the refrigerator or under the cushions of the living-room couch.
There are also provisions that require financial institutions to tell the government about every transfer over $600 – an unconscionably low threshold.
The Biden budget expands the Internal Revenue Service (IRS) budget to hire an army of tax collectors to chase down every penny.
The Taxman is coming and there’s no way to stop him.
But you can stay ahead of him.
You can offset the ravages of higher taxes by cashing on the wave of federal spending that taxes will be hiked to pay for.
And there are six moves to make this happen…
- Beat the Biden Tax Bite Move No. 1: Shield Thyself – This move is a great one because it’s so easy to engineer. And you do this by diverting savings from taxable funds into tax-free income funds. I like using closed-end fund specialist River North out of Chicago for tax-free income. Specifically, this firm has a fund called the RiverNorth Flexible Municipal Income Fund (NYSE:RFM) that shifts money between a tax-free institutional manager, MacKay Municipal Managers, and tax-free closed-end funds based on market conditions. When closed-end fund discounts are wider than average, the fund over-allocates to tax-free closed-end funds. When those discounts are narrower than normal, they add to the institutional account. The fund is currently yielding 4.1% that is tax-free at the federal level. There is going to be a lot of tax planning and asset shuffling going on to help investors.
- Beat the Biden Tax Bite Move No. 2: Bet on the Helpers – The financial gyrations that will become standard-operating procedure (SOP) as investment advisors work to outrun the Taxman should help the advisors who are a part of the Focus Financial Partners (NasdaqGS:FOCS), a firm that has grown by buying smaller Registered Investment Advisors (RIA) around the United States and aggregating them into a single, big firm. This allows the smaller firms to gain the benefits of size and scale, making them more competitive and more profitable. Focus has been moving aggressively to expand its presence in the ultra-high-net-worth market – and with a great deal of success. These are the folks that the tax increases will hit the hardest, and they will be more than willing to pay for solutions that allow them to keep The Taxman’s hands off their cash. The deals market in the RIA market is also very attractive, and that should help drive even greater earnings for Focus.
- Beat the Biden Tax Bite Move No. 3: Ante Up on Annuities – If there’s one group that will have a veritable field day with higher tax rates, it’s the folks who sell annuities. As much as I detest the product category, sales of variable and index annuities are likely to skyrocket as investors look for places to push some of their savings out beyond The Taxman’s reach. To detail all the reasons that I detest variable and indexed annuities (they are expensive to own and usually don’t perform as well as promised, to name a few) would require a report by itself. But they’re an “easy sell” – thanks to tax deferrals and promises of grabbing most of the stock market’s upside, with none of its downside. That reality should be very good for American Equity Investment Life Holding Co. (NYSE:AEL), one of the largest U.S. providers of indexed annuities. Sales are already accelerating, as revenue rose to a record $2.4 billion in the first quarter. And as tax talk spirals higher, so will American Equity’s revenue and profits.
- Beat the Biden Tax Bite Move No. 4: Surf the Spending Wave – We also need to track where the money from the new budget will be spent. A wave of that cash will go into construction – buildings and infrastructure. And that will be great since there is a flood of government infrastructure and buildings in the budget. That is going to be good news for a company I told you about here just a few months back. That company is PAE Inc. (NasdaqGS:PAE), a Falls Church, Virginia-based government contractor that has its hands in global security, infrastructure, outsourcing, construction, training and testing, and even space services – every one of them a “front-burner” enterprise for the United States and its allies. There are budgetary provisions for border-and-homeland security, cybersecurity, and the U.S. armed forces. All of this is good news for PAE, which also manages one of the largest portfolios of U.S. government contracts for critical infrastructure management and support of space missions.
- Beat the Biden Tax Bite Move No. 5: Energize Your Gains – A big part of the Biden spending plan will focus on clean energy – which CNBC said could be a “windfall for investors.” Willdan Group Inc. (NasdaqGS:WLDN), an engineering-and-energy solution that has worked with governments, education systems, healthcare facilities, and data centers to its building-and-operations more energy efficient. The company designs and builds power systems, including distributed-energy resources and renewable-power sources – like solar, energy storage, cogeneration, wind, and fuel cells. If all that sounds familiar, it’s because it’s ripped right out of the progressive playbook for energy spending that President Biden has embraced. Willdan provides specialized software to optimize buildings, programs, and power grids. This software is used by architects, engineers, facility owners, city governments, grid owners, and over 100 utilities across the United States. Renewables and the grid get a lot of money from the proposed budget. WLDN already has relationships with the folks that will be handling these projects and should get a nice boost in contract awards and profits.
- Beat the Biden Tax Bite Move No. 6: Get Healthy – Healthcare will be a star of this budget plan – and healthcare-player ModivCare Inc. (NasdaqGS:MODV), formerly known as Provident Services, should also see massive cash inflows from this budget. ModivCare does in-home and on-site care optimization services, including comprehensive health assessments using a network of local doctors and a fleet of mobile health clinics. It also provides transportation for home-healthcare patients who can’t afford hospital care or have special needs. They also provide personal and home care and nutritional meal delivery. Last year, ModivCare provided 48.2 million trips for more than 30 million patients across its national network of 5,700 third-party transportation providers and more than 30,000 respective drivers. It also spent $575 million in cash to buy Simplura Health Group, which operates a large network of home health and personal care agencies across seven states.
There you have it: Six moves that will beat the Biden Tax Bite. Plays on tax-free investing, asset management, annuity sales, infrastructure, clean energy, and healthcare that will earn you more – far more, in fact, than the predicted Mad Tax Surge will take from your pocket.
Let me know what you think…
Until next time,