What You Need To Know Right Now To Manage Your Wealth 

Published Friday, March 26, 2021 at: 8:50 PM EDT

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Personal income per person in the United States and the savings rate dropped sharply in February but remained much higher than normal due to government stimulus payments, according to data released this morning by the Bureau of Economic Analysis (BEA). 

Legislation introduced by four Democrats in the Senate yesterday would hike the estate tax on the top half of the 1% of wealthiest Americans, and Secretary of the Treasury, Janet Yellen, told the Senate Banking Committee on Thursday that her views on the size of the national debt have evolved since 2017. Meanwhile, the Standard & Poor’s 500 stock index set a new all-time closing high price. 

Those are the top stories in this week’s wealth management news update. 

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The BEA data released this morning was no surprise. After Covid aid and stimulus payments hit accounts and caused an unprecedented surge in January, disposable personal income and the savings rate in February plunged. The savings rate, at 13.6% in February, dropped from January’s 19.8%. However, income and savings are still very high, considering the pandemic is continuing to cause a partial shutdown of the economy.

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DPI per capita would have collapsed due to the pandemic without the $4.5 trillion in aid and stimulus from the federal government, which came in two tranches in April 2020 and January 2021. 

The third tranche of $1.9 trillion in government aid, will show up in this chart in two months. It will cause a third spike in DPI as well as savings.  

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Personal income in America is comprised of five components and employee compensation is by far the most important year-after-year. However, in the 12 months through February, government transfer payments in the form of stimulus checks and supplemental federal unemployment insurance payments surged an unprecedented 55.1%. That hasn't happened before! It’s history-making!  

Despite the pandemic killing 9.5 million jobs, in the 12 months through February personal income in America rose 4.3%. Amid the worst disaster to plague the nation in a century, personal income shot significantly higher due to government action. 

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The other big wealth management story for this week came from the testimony by Secretary of the Treasury Janet Yellen before the Senate Banking Committee. Ms. Yellen, who chaired the Federal Reserve for the four-year period ended February 2018, said the interest payments on the U.S. long-term debt is not growing relative to size of the economy. 

A professor of economics for most of her career, Ms. Yellen, 74, said her thinking on the increase in government debt has changed in the past few years. Senator Richard Shelby reminded her that she expressed concern about the U.S. Government’s debt in 2017, when the debt grew to 75% the size of the gross domestic product (GDP). With the U.S. debt now at 102% the size of the economy, why is she not alarmed?   

Ms. Yellen said interest payments to service the national debt are not rising relative to GDP as result of the $5. 5. trillion in government stimulus and relief to fight the Covid virus. “..the burden of the debt on society and government [is] a more meaningful metric.”

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Five Senate Democrats -- Sens. Kirsten Gillibrand (D-N.Y.), Sheldon Whitehouse (D-R.I.), Chris Van Hollen (D-Md.), and Jack Reed (D-R.I.) and Sen. Bernie Sanders – yesterday co-sponsored the "For the 99.5% Act"

Under this proposed legislation, Sen. Sanders says the families of all 657 billionaires in America who have a combined net worth of over $4.26 trillion would owe up to $2.7 trillion in estate taxes.

“Ninety-nine and a half percent of Americans would not owe a penny more in taxes under this bill,” says a press release by Sen. Sanders, “but the families of all 657 billionaires in America – who have a combined net worth of over $4.2 trillion – would owe up to $2.7 trillion in estate tax. Specifically, this legislation would impose a 45% tax rate on estates worth $3.5 million and a 65% tax rate on the value of an estate worth over $1 billion.” According to the Joint Committee on Taxation, the bill would raise $430 billion through 2031. 

Components of the proposal may be incorporated in a tax hike expected to be enacted this year. If you have a taxable estate valued at more than $3.5 million -- $ 7 million for couples – preemptive action is urgent. Let us know if you have questions. 

Within days, President Joseph Biden’s administration is expected to propose legislation that would hike taxes on individuals with more than $400,000 of adjusted gross income in 2021 by 6.4%, slash favorable capital gains treatment, raise the rate on the top income tax bracket, and tax estates valued at more than $3.5 million. 

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While the tax planning alert is the most important wealth management news of the week, the Standard & Poor’s 500 stock index closed Friday at an all time high of 3,974.54. The index gained +1.66% from Thursday and is up +1.55% from last week. The index is up +55.92% from the March 23rd bear market low.


Nothing contained herein is to be considered a solicitation, research material, an investment recommendation, or advice of any kind, and it is subject to change without notice. Any investments or strategies referenced herein do not take into account the investment objectives, financial situation or particular needs of any specific person. Product suitability must be independently determined for each individual investor. Tax advice always depends on your particular personal situation and preferences. You should consult the appropriate financial professional regarding your specific circumstances. The material represents an assessment of financial, economic and tax law at a specific point in time and is not intended to be a forecast of future events or a guarantee of future results. Forward-looking statements are subject to certain risks and uncertainties. Actual results, performance, or achievements may differ materially from those expressed or implied. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete, and is not intended to be used as a primary basis for investment decisions. This article was written by a professional financial journalist for Advisor Products and is not intended as legal or investment advice.

This article was written by a veteran financial journalist based on data compiled and analyzed by independent economist, Fritz Meyer. While these are sources we believe to be reliable, the information is not intended to be used as financial advice without consulting a professional about your personal situation.

Indices are unmanaged and not available for direct investment. Investments with higher return potential carry greater risk for loss. Past performance is not an indicator of your future results.

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