Proactive Tax Planning

What You Need to Know

1) Medicare trustees have moved the inpatient hospital benefits fund depletion date back to 2036 from 2031.

2) The trustees continue to believe that the actual situation is even
worse than it officially looks.

Did you know that half of the US Population will be 65 or older by 2030, and most of them will be on Medicare?

The post-pandemic surge in healthcare use, the aging U.S. population, and healthcare worker shortages hit Medicare hard in 2023.

According to the latest Medicare trustees report, the huge U.S. government health insurance program lost $12 billion in 2023 on some $1 trillion in revenue, compared with an $83 billion gain on $989 billion in revenue in 2022.

The good news is that the Payroll tax revenue rose 4.1% to $367 billion.

And higher interest rates pushed interest income up 27%, to $10 billion.

However, spending climbed to $15,547 per Medicare enrollee, up 15% from the 2022 average, and the effects of soaring costs swamped the effects of modest revenue growth.

Any changes that become law could complicate planning for clients but increase demand for the kinds of life insurance products and trust services that wealthy taxpayers use to cope with taxes.

None of this should be a surprise to anyone. And it's only going to get worse. The Social Security system is under the same pressure.

Do you think the government will raise our taxes to pay for these programs?

What does all this mean? Medicare losses will push Medicare program managers and members of Congress to look for ways to cut benefit costs and add additional revenue.

In my opinion, the hunt for Medicare money will put added pressure on lawmakers to let the estate tax exemption spring back to the pre-2017 level in 2026 and reduce or eliminate other federal tax breaks, push up payroll taxes make the IRMAA penalties even stiffer.

What do you think about all of this?

Below is a look at the performance of key ETFs across various asset classes in April, year-to-date, and year-over-year from Bespoke Investment Group. You can see that the S&P 500 (SPY) fell more than 4% in April, while mid-caps and small-caps fell even more.

At the sector level, Real Estate (XLRE), Technology (XLK), and Health Care (XLV) all fell more than 5%. Meanwhile, Utilities (XLU) was the only sector that was up.

Outside of the US, China (MCHI) and Hong Kong (EWH) actually bounced back while the rest of the world took a breather. Commodities ETFs either rose or only fell slightly, while Treasury and other fixed-income ETFs were solidly in the red.

Bespoke's daily newsletter offers some great info!

This is Classic! From Bespoke:

In late June 2018, the Dow Jones Industrial Average keepers announced that they would be removing General Electric (GE) as one of the 30 Dow members and replacing it with Walgreens Boots Alliance (WBA).

This change was a big one since GE was the last remaining stock in the index that was an original member at its creation back in 1896!

When stocks are removed from the Dow, it's usually because they've gone through an extended period of weakness as a company. GE used to be the largest company in the world, but from its all-time high in 2000 through its removal from the Dow in June 2018, the stock was more than cut in half.

When stocks are added to the Dow, they are usually riding high and firing on all cylinders. This setup, however, leaves the indices at risk of adding stocks when they're peaking and removing stocks just as they're bottoming.

That appears to be what happened with Walgreens and GE. While it has taken a little while to play out, Walgreens (WBA) is now down just over 50% since being added to the Dow on 6/26/18, while GE is up 49.3%.

Take a look at the rolling 30-year returns on the S&P 500 since 1950 (the blue line). Compare them to the latest one-year returns (the orange bars) for each 30-year period.

The returns in any given year are all over the map. However, the 30-year returns don’t change all that much from year-to-year.

One-year returns can make you feel wonderful or terrible, but they’re not going to have a ton of bearing on your long-term results (assuming you stay the course).

This chart shows the SEVEN stocks have accounted for 71.8% of the S&P 500 index gains for the year as of last Friday!

By the way, the Dow Jones Industrial Avg. is only up 5.3% YTD, while those 7 NASDAQ stocks have helped propel that index to a 35.7% gain for 2023.