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The Financial Planning AssociationPhiladelphia Tri-State Area

18th Annual Spring Symposium

May 2, 2005

Cincinnati • Cleveland • Columbus • Costa Mesa • DenverHouston • Los Angeles • New York • Orlando • Washington, D.C.

International AffiliatesSão Paulo, Brazil • Juárez, Mexico

www.bakerlaw.com

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Tax Policy Update: A View From Inside The Washington Beltway

Prepared for

The Financial Planning Association

by

Edward Jay Beckwith

Partner

Baker & Hostetler LLP

Washington, D.C.

Mr. Beckwith can be reached at beckwith@bakerlaw.com

© 2005 Edward Jay Beckwith

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PAIN BY THE NUMBERS

• CURRENT FEDERAL DEBT

• GOVERNMENT EXPENDITURES ARE RISING FASTER THAN REVENUES

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PAIN BY THE NUMBERS(Continued)

• DEFICITS ARE PROJECTED EVERY YEAR THROUGHOUT THIS DECADE (AND BEYOND?)

• ARE ADDITIONAL TAX CUTS POSSIBLE?

• ARE TAX INCREASES INEVITABLE?

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THE PUBLIC WANTS

• SECURITY AT HOME

• SECURITY ABROAD

• ENERGY AND TRANSPORTATION

• EDUCATION

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THE PUBLIC WANTS(Continued)

• GOVERNMENT BENEFIT PROGRAMS– SOCIAL SECURITY

– MEDICARE/MEDICAID

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THE PUBLIC WANTS (continued)

– PRESCRIPTION DRUGS

– WELFARE

• PUBLIC WORKS

• AND ON AND ON

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THE PRESIDENT AND CONGRESS

• TALK TAX CUTS

• FIND IT HARD TO CUT PROGRAMS

• HAVE NEW PROGRAMS AND PROJECTS TO FUND

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WHICH FICTION DO YOU WANT TO APPLY?

• DEFICITS DON’T MATTER

• GOVERNMENT CAN/WILL GET SMALLER

• ECONOMIC GROWTH SOLVES ALL PROBLEMS

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A PERIOD OF PROFOUNDUNCERTAINTY

• FEDERAL TRANSFER TAXES

– ESTATE TAX

– GST TAX

– GIFT TAX

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A PERIOD OF PROFOUNDUNCERTAINTY

(Continued)

• STATE TRANSFER TAX AND THE DEATH OF THE STATE DEATH TAX CREDIT

• INCOME TAX REDUCTIONS

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MORE UNCERTAINTY:TAXES ARE ALWAYS CHANGING

• FALLING OFF A CLIFF

• TAX ACTS NEARLY EVERY YEAR

• CONSUMPTION TAX CREEP

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MORE UNCERTAINTY:TAXES ARE ALWAYS CHANGING

(Continued)

• ONGOING CONGRESSIONAL OVERSIGHT

• ONGOING IRS REGULATORY PROJECTS

• LAX ENFORCEMENT/INCREASED ENFORCEMENT

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REFORM: MORE TALK THAN ACTION?

• “BLUEPRINTS FOR BASIC TAX REFORM” (1977)

• “TAX REFORM FOR FAIRNESS, SIMPLICITY AND ECONOMIC GROWTH” (1984)

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REFORM: MORE TALK THAN ACTION?

(Continued)

• “THE PRESIDENT’S TAX PROPOSAL TO THE CAMPAIGNS FOR FAIRNESS, GROWTH AND SIMPLICITY” (1985)

• PRESIDENT’S ADVISORY PANEL ON FEDERAL TAX REFORM (2005)

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DON’T BE STAMPEDED!

• DON’T MAKE PROFESSIONAL JUDGMENTS BASED ON THE HEADLINES, HYSTERIA, THE “ISSUE OF THE MONTH” OR EVEN THOUGHTFUL SHORT-TERM ANALYSIS

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DON’T BE STAMPEDED!(Continued)

• USE YOUR OWN COMMON SENSE!

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SOME POLITICAL REALITIES

• RISING DEFICITS

• POLITICAL STALEMATE

• TICKING TIME BOMBS

• LONG-TERM PROBLEMS ARE HARD TO ADDRESS POLITICALLY

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SOME PREDICTIONS

• FINGER POINTING

• MODEST ADJUSTMENTS

• FEW IF ANY LONG TERM FIXES

• CONTINUED UNCERTAINTY

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QUESTIONS?