NEW YORK: There are few certainties for year-end tax planning this year, but if you're a wealthy investor there is one sure thing — the new Medicare tax, slated to begin in 2013.
Part of the 2010 health care reform law, it is a 3.8 percent tax on investment income for individuals with adjusted gross income above $ 200,000, or $250,000 for married couples filing jointly. The same high-income taxpayers will also face an additional Medicare tax of 0.9 percent on wages and self-employment income, on top of the Medicare tax they currently pay.
"This is very real," says Robert Keebler, a partner at Keebler & Associates, a tax and estate planning firm in Green Bay, Wisconsin, who recently wrote a book on the Medicare tax for tax research firm CCH. "People are still in denial, but this is starting to change."
Workers already pay 1.45 percent of their pay in Medicare taxes. Employers also pay 1.45 percent, but won't be required to pay half of the new 0.9 percent additional tax.
The new Medicare tax is structured as a surcharge on net investment income including capital gains, dividends, interest, royalties, partnerships and trusts. The tax does not apply to tax-exempt income, such as interest from municipal bonds, or distributions from retirement plans. The rules are complex; on Monday the Internal Revenue Service issued a 159-page proposed rule designed to clarify the tax.
Depending on how much you make from wages and investments, the surcharge could apply to all of your investment income or only to part of it.
To understand how the tax works consider two examples, included in a Wells Fargo Advisors explainer on the issue. Couple A has wages of $ 230,000 and capital gains of $ 30,000, for a total of $ 260,000; they're $10,000 over the threshold, so would owe 3.8 percent of that excess, or $ 380, for the Medicare tax. Couple B has wages of $ 350,000 and investment income of $ 35,000; they would owe 0.9 percent on the $ 100,000 in wages over the threshold (or $ 900), plus 3.8 percent on their investment income (or $ 1,330), for a total of $ 2,230.
These new Medicare taxes, coupled with the slated expiration of the George W. Bush-era tax cuts at the end of this year, have accountants and tax advisers preparing for a flurry of activity from their wealthy clientele.
For high earners, the combination of the Medicare tax and an expected higher capital gains rate could result in an effective long-term capital gains rate of 23.8 percent, versus today's low rate of 15 percent.
If you're lucky enough to be above the threshold, here's how to think about your planning over the next few weeks.
If you expect to be above the Medicare tax threshold and think your capital-gains rate will be higher in 2013, that turns traditional tax-loss harvesting on its head. Instead of the typical strategy of taking capital losses at year-end, you'll want to take gains and defer losses — you can lock in the gains at 15 percent this year, versus potentially paying 23.8 percent next year.
If you have stocks with substantial gains in your taxable portfolio, you could even choose to lock in the 15 percent tax on those gains, then buy back the same stock over the coming months in order to reset your cost basis for tax purposes before rates go up. (The so-called wash sale rule, which prohibits immediately buying the same shares back when you take a loss, doesn't apply to gains.) Ideally, you'll want to pay for the tax outside of the investment you sold so as to keep the amount invested the same.
Medicare surcharge strategies get more complex for those who have trusts. Trusts are subject to the Medicare tax on the lesser of their undistributed net investment income for the year or the excess of their adjusted gross income over a threshold, currently $11,650. The result is that most trusts — with the exception of charitable trusts, which are exempt — will be affected by the new Medicare tax.
"The threshold is very low on trusts," says Ron Finkelstein, a tax partner at Marcum LLP in Melville, N.Y. "The threshold for trusts is much lower than for individuals."
One possible strategy for trusts: They may be able to reduce or eliminate the Medicare tax by distributing income to beneficiaries — especially if those recipients have income levels that put them below the cut-off for the Medicare tax.
Interest payments on intra-family loans, which have been quite popular among affluent families at a time of low rates, could also be subject to the Medicare tax for those receiving the loan repayment. That means that those parents who have used intra-family loans to help their kids without paying gift taxes may want to revisit those arrangements.
"Things that people have done in the past that were revenue-neutral, like intra-family loans, no longer are," says Paul Gevertzman, a tax partner at accounting firm Anchin, Block & Anchin, in New York. "What was a good plan two years ago isn't a good plan now. So either you want to undo it or lower the interest rate to the lowest allowable amount."
Increasing taxes on investments could prove a boon to insurance sales. That's because investment income that accrues within insurance products isn't subject to the same taxes - and death benefits are never taxed, Keebler says. While he's advising his clients to wait until the final regulations on the Medicare tax come out, he figures that insurance will be a good option for at least some of them.
Then again, when making investments, tax should always be a secondary reason for deciding what to do. As Anchin, Block & Anchin partner Laurence Feibel puts it: "Warren Buffett is right. No one chooses not to invest because the tax rate is 50 percent. That's the reality."
— The writer is a Reuters columnist.
The opinions expressed are her own.
Getting ready for the Medicare tax on investment income
Getting ready for the Medicare tax on investment income
WEF panelists call for systemic policy shifts to help developing countries out of global debt crisis
WEF panelists call for systemic policy shifts to help developing countries out of global debt crisis
- At World Economic Forum Annual Meeting in Davos, they urge governments and lenders to take shared actions to build strong, resilient economies and relieve debt burdens
- Developing countries have accrued twice as much debt since 2010 compared with those in the developed world
DUBAI: The international community must devise ways to help nations in the developing world out of the global debt crisis and safeguard societies from the long-term effects of economic stagnation.
This was the message from a panel of experts during a discussion at the World Economic Forum Annual Meeting in Davos on Tuesday. Amid global transformations and ongoing uncertainty, they called for shifts in domestic and global monetary policies to provide relief for countries with debt burdens, and for governments and lenders to take shared actions to help build strong and resilient economies.
An International Monetary Fund report published in October stated that global pubic debt was expected to exceed $100 trillion during 2024, representing about 93 percent of global gross domestic product. Developing countries have accrued twice as much debt since 2010 compared with those in the developed world, according to UN figures..
The COVID-19 pandemic, climate change and unprecedented hikes in interest rates have compounded this debt crisis in some countries, potentially jeopardizing the futures of generations to come and slowing global progress.
Rebeca Grynspan, the secretary-general of UN Trade and Development, called for change at a systemic level to help countries take proactive steps to avoid debt problems in an ever-changing world.
“The developing world has half the debt that developed world has, the problem is paying for it,” she said.
“Firstly, we should avoid a liquidity problem becoming a debt problem. We have instruments that we don’t use in the international system, like special drawing rights.
“Secondly, the developing countries need long-term loans. If you go for infrastructure, you really want to grow, you need long-term money.”
For a monumental shift to take place, multilateral development banks need to scale up, take risks and crowd in private investment, Grynspan added.
About 3.3 billion people live in countries that spend more servicing debt than they do on education or health, according to a report published by the UN in July 2023.
“Markets are not in crisis but people are,” said Grynspan. “We don’t have a debt fault, but we have a development fault and that in turn will come to hunt us because if you cannot have growth in these countries, then we will not be able to get onto a sustainable path.”
Andre Esteves, chairperson and senior partner of Brazilian financial company Banco BTG Pactual, warned that a trade war between US and China during Donald Trump’s second term as president might affect other countries. However, he also highlighted positive indicators among the policies of the new administration in Washington.
“The whole idea of more fiscal discipline, ranging from deregulation and private-sector growth,” he said by way of examples. “But there needs to be the core of regulatory framework, otherwise it would be a bad move.”
As the debt crisis fuels power imbalances, dominance is expected to skew toward China, said Simon Freakley, the chairperson and CEO at global consulting firm AlixPartners.
“In today’s world, where developing countries are struggling to pay back their debt, they need to borrow more,” he noted, adding that China is able to exert significant influence as its capital markets are wide open to commodity-rich countries unwilling to borrow more money or service a debt.
Rania Al-Mashat, Egypt’s minister of planning, economic development and international cooperation, said macroeconomic stability needs to be coupled with structural reforms that improve the business environment to attract investment, reduce burdens and support the green transition.
Amid escalating conflicts in the Middle East and North Africa region, policies must be adopted to help mitigate the effects of various types of shocks, she added. For example, an IMF-supported Egyptian program was approved in December 2022 with the aim of achieving macroeconomic stability and encouraging private-sector-led growth.
“The manufacturing sector could benefit from inflows there,” Al-Mashat said. “We are also trying to put stringent ceilings on public investment so that the private sector can come in. All of these are drivers for growth financing for development.”
She called for a rethinking of global financial architecture to help more middle-income, emerging economies find alternative financing, such as debt swaps, for climate action or development.
Mohammed Aurangzeb, Pakistan’s minister of finance and revenue, warned of the long-term effects of economic stagnation. He said his country this month entered into a 10-year partnership with World Bank Group to address the issues of climate change and population.
“Population means child stunting, learning poverty and girls out of school,” he says. “There’s also climate resiliency and decarbonization. Unless we address this, the medium-to-long-term growth is not going to be sustainable.”
UAE’s economy minister says Middle East desires ‘more peace’ as US President Trump takes charge
- Abdulla bin Touq Al-Marri speaks of need to strengthen historic ties with US
- GCC region has experienced significant economic growth over past 50 years
- Emirati minister spoke on panel addressing geopolitical, environmental issues
- Minister shares hopes of Dubai becoming ‘20-minute commute’ city
DAVOS: Arab Gulf countries want to strengthen their historic ties with the US under the new administration of President Donald Trump as the Middle East urgently needs peace and stability, according to the UAE’s Minister of Economy Abdulla bin Touq Al-Marri.
The Emirati minister spoke at the World Economic Forum in Davos on Tuesday and said that the UAE was the US’ No. 1 commerce partner within the Gulf Cooperation Council, with a bilateral trade of $40 billion annually.
He added that the relationship between the UAE and the US was an example of the strategic ties that Washington had forged with other GCC countries, such as Oman and Bahrain.
Al-Marri said the GCC region had experienced significant economic growth over the past 50 years. However, the Middle East continued to be a volatile region, riddled with political and armed conflicts.
Al-Marri said: “Now, what do we want in the region? We want more peace and we want more stability, and we want more growth for the region.”
He added that the UAE viewed its relationship with the US from a macro perspective and wished to continue on a strong and steady path during the Trump administration.
The Emirati minister was speaking on a panel called “Hard Power: Wake-up Call for Companies,” which addressed geopolitical and environmental issues related to corporations and investments.
Other panelists included Ukraine’s Deputy Prime Minister Yulia Svyrydenko; Nader Mousavizadeh, the CEO of Macro Advisory Partners; and Nir Bar Dea, the CEO of Bridgewater Associates.
Svyrydenko said that Ukraine faced a challenge in convincing investors and corporations to conduct business in a country locked in a conflict with Russia.
The deputy premier said that Ukrainian officials had done their homework to create a secure environment for investments in Ukraine, but that Kyiv was finding it challenging to meet the safety expectations of potential investors.
Svyrydenko said: “What kind of security guarantee do (investors) need? Do you need an anti-missile system in the industrial belts? Or do you need troops, or do you need NATO? It’s time for business to be more vocal about this and help us (answer) this issue.”
Al-Marri said the UAE was “supportive” of the government of Ukraine when asked if Russian nationals residing in the UAE could return home if Trump helps to end the conflict in Eastern Europe.
There are no officially published figures regarding the number of Russian residents in the UAE although at least 1 million Russians visit the country annually as tourists.
Despite the potential for a tariff war between the US and China, Al-Marri stressed that the annual bilateral trade volume between Beijing and Abu Dhabi stood at $80 billion annually.
He said: “You can’t say ‘I need the world without China,’ and you can’t have the world without China; let’s be clear on that. You need China in this kind of trade domain.”
Al-Marri said that the UAE had “always built a bridge, always designed a supply chain” between regions.
He added: “We are ready for the world. We are very open, and we need corporations as well to think about the UAE as a place (for business and trade).”
He said that the UAE’s strategic location between East and West was ideal for companies connecting with various markets.
He added: “So, if you open a shop in Dubai or Abu Dhabi, you are operating the whole world.”
The minister shared his hopes of Dubai becoming a “20-minute commute” city, as its population is projected to reach 4 million next year.
Saudi Arabia raises $990m in sukuk issuances for January
RIYADH: Saudi Arabia’s National Debt Management Center has completed its riyal-denominated sukuk issuance for January, raising SR3.72 billion ($990 million).
In December 2024, the Kingdom raised SR11.59 billion through sukuk, while the amounts in November and October were SR3.41 billion and SR7.83 billion, respectively. Sukuk are Shariah-compliant debt instruments that provide investors with partial ownership of the issuer’s assets until maturity.
According to the NDMC, the January sukuk issuance was divided into four tranches. The first tranche, valued at SR1.25 billion, is set to mature in 2029. The second tranche, sized at SR1.40 billion, will mature in 2032, while the third tranche, worth SR1.03 billion, will mature in 2036. The fourth and final tranche was valued at SR28 million and will mature in 2039.
The consistent issuance of these Islamic bonds is in line with expectations outlined in a recent report by S&P Global, which projected that global sukuk issuance could reach between $190 billion and $200 billion in 2025.
The growth is largely expected to come from markets such as Saudi Arabia and Indonesia. S&P Global also reported that global sukuk issuances amounted to $193.4 billion in 2024, a slight dip from $197.8 billion in 2023.
Adding further optimism to the market, a report from Fitch Ratings released on Jan. 21 highlighted the expansion of the environmental, social, and governance sukuk market.
Fitch expects that outstanding global issuance of ESG sukuk will surpass $50 billion by 2025, with Saudi Arabia expected to play a significant role in this growth.
Meanwhile, a December analysis by Kamco Invest projected that Saudi Arabia would face the largest share of bond maturities in the Gulf Cooperation Council region between 2025 and 2029, with an estimated total of $168 billion.
ESG sukuk set to cross $50bn in 2025: Fitch Ratings
RIYADH: The global issuance of environmental, social, and governance sukuk is expected to surpass $50 billion outstanding in 2025, driven by Islamic finance markets in countries including Saudi Arabia, according to an analysis.
In its latest report, Fitch Ratings said the global value of Shariah-compliant bonds focused on ESG expanded by 23 percent year on year to $45.2 billion outstanding in 2024. This growth outpaced global ESG bonds, which saw a 16 percent increase. The analysis added that countries such as the UAE, Indonesia, and Malaysia would play a key role in driving the growth of ESG sukuk.
These bonds are investments in renewable energy and other environmental assets and are considered key debt instruments as the world moves toward a greener future.
“The ESG sukuk market has a robust credit profile, with nearly all Fitch-rated ESG sukuk being investment grade,” said Bashar Al Natoor, global head of Islamic Finance at Fitch Ratings.
He added: “Sukuk is now a key ESG funding tool in emerging markets, with growth expected amidst sustainability initiatives, funding needs, and a favorable funding environment. However, issuances remain concentrated in a handful of countries.”
ESG sukuk expansion also outpaced global sukuk growth, which witnessed a 10 percent increase in 2024.
The US-based credit rating agency added that green and sustainable sukuk could help issuers opportunistically tap demand from ESG-sensitive international investors from the US, Europe, and Asia, as well as sukuk-focused Islamic investors from the Gulf Cooperation Council region.
Several factors, including funding diversification goals, enabling regulations, sustainability initiatives, and net-zero targets pursued by sovereigns, banks, and corporations, as well as government-related entities, could boost the issuance of this debt product in 2025.
The analysis revealed that ESG sukuk is also likely to cross 15 percent of global dollar sukuk issuance in the medium term.
The report also highlighted the impact of the adoption of Accounting and Auditing Organization for Islamic Financial Institutions’ Sharia Standard 62.
“Risks facing ESG sukuk market growth include Shariah-compliance complexities, such as linked to AAOIFI Sharia Standard No. 62, weakening sustainability drives, geopolitical risks, and oil volatilities,” said Fitch Ratings.
This AAOIFI guideline, which was published as an exposure draft in late 2023, aims to standardize various aspects of the sukuk market, including asset backing, ownership transfer, and trading procedures.
Earlier this month, S&P Global said that global sukuk issuance is projected to hit between $190 billion and $200 billion in 2025, driven by increased activity in key markets such as the Kingdom and Indonesia.
In December, a report by Kamco Invest projected that Saudi Arabia would face the largest share of bond maturities in the GCC region from 2025 to 2029, reaching an estimated $168 billion.
WEF panel explores ways to drive economic growth in uncertain times
DUBAI: The World Bank Group’s forecast suggests that between 2024 and 2026, countries that collectively account for more than 80 percent of the world’s population and global GDP will still be growing more slowly than they did in the decade before COVID-19.
Moreover, new trade barriers introduced have nearly tripled since 2019, according to the UN.
In this environment, how do global economies find growth? That was the question being explored by a World Economic Forum panel “Finding Growth in Uncertain Times” in Davos.
Moderated by WEF President and CEO Borge Brende, the panel featured Ngozi Okonjo-Iweala, director-general of the World Trade Organization; David Rubenstein, co-founder and co-chairman of global investment firm Carlyle; Marcus Wallenberg, chairman of Swedish bank Skandinaviska Enskilda Banken and Khaldoon Khalifa Al-Mubarak, group CEO, Mubadala Investment Company.
Okonjo-Iweala laid out four requirements for growth: maintaining or restoring macroeconomic stability and good management including fiscal consolidation; openness and predictability of global markets, which requires strengthening resilience in economies; “re-globalization,” which means decentralizing and diversifying supply chains; and lastly, adopting technology and AI, which will increase productivity and lower trade costs in a way that allows for double-digit growth in trade from now until 2040.
There are many questions about US policy with President Donald Trump stepping into office on Monday. Rubenstein addressed some of these questions and concerns saying that in just a day, Trump has issued several executive orders.
“I think you will see him (Trump) doing a lot of fairly robust things that might not have been anticipated before,” he said.
He went on to explain some of the new administration’s policies, such as tax cuts, aimed at spurring growth; imposing tariffs as a negotiation tool for greater trade cooperation; and increasing production of natural gas and oil, which is already at its highest in the country.
“The biggest impediments to growth,” not just for the US but globally, are the wars in the Middle East, Rubenstein said.
He added: “The US’s problems are not the biggest problems. The biggest challenge for economic growth around the world is the Global South, which, because of the challenges of the last 15 years went further behind the developed markets than desired.”
The US is feeling “fairly bullish” about the economy for the near future, and so, it has to ensure it is helping out other countries in terms of wars and access to technology, Rubenstein added.
Europe, on the other hand, is lagging behind with weak growth forecasts. This is partly due to Europe not being as competitive, according to Wallenberg.
He said: “Over the years, Europe has tended to perhaps not understand our competitive situation and the strategic position that we find ourselves (in) with a very strong United States and a very strong China, and therefore our competitiveness has been challenged.”
Wallenberg pointed out that Europe is a rather larger market, which means there is potential for scale. But first, it needs to revive its confidence as well as that of its consumers along with “a singular capital market that is unified” and “a number of institutions that can provide more risk capital,” among other things.
“We have all the ingredients to make it happen,” he said. “Now, we just have to stand up and get it done.”
Turning to the Middle East, Mubadala’s Al-Mubarak underlined the importance of sovereign wealth funds.
Because they are “highly capitalized” and have a “high liquidity position” as well as the ability to think and invest long term, sovereign funds are becoming more and more important to support global growth, he said.
He explained why the UAE is a good example of a growth story. For example, its capital Abu Dhabi was rated the safest city in the world for the seventh year running; it ranked fifth globally in AI competitiveness according to a Stanford study; and it recorded the largest inflow of high-net-worth individuals globally in 2024, he said.
The UAE sets the example of “growth in this new world,” particularly “how to create growth and diversify from one sector to a multi-faceted economy,” Al-Mubarak said.
