Preparing for the Future in an Uncertain Tax Environment

1. Preparing for the Future in an Uncertain Tax Environment November 19, 2009 Steve Broadbent (CA LIC OC48841) is a registered representative of, and securities products and services are offered through, Clark Securities, Inc., DBA CCFS, Inc. in Texas, member NASD & SIPC, Los Angeles, CA 90071, (213) 438-6300.

2. Overview • Budget • Economy • Political Environment • Taxes • What’s Ahead

3. Budget Deficit Outlook • Before the February 2009 stimulus package

4. Budget Deficit Outlook • Current projection, but before the House health care bill

5. Budget Deficit Outlook • No end in sight to deficit spending Outlays $ Billions Revenue Deficit October 2009 Budget Deficit Forecast (Congressional Budget Office; $Billions)

6. The Long Term: Entitlements Crisis • Spending per Medicare/Medicaid enrollee has grown 2.5 percentage points faster than per capita GDP since 1970. • Mandatory spending rising as population ages • Social Security benefit payments to increase • $581 billion in 2007 • $1.092 trillion in 2018 • Medicare spending to grow • $436 billion in 2007 • $879 billion in 2018 Source: Congressional Budget Office

7. Year Over Year Growth of Entitlements Medicare and Social Security will grow from 7.6% of GDP in 2008 to 12.4% in 2034 Social Security Medicaid Medicare Source: Social Security Administration’s “A Summary of the 2009 Annual Reports”

8. Outlook for Social Security

9. State of the Economy Quarterly GDP Growth (%) Source: US Dept. of Commerce, Bureau of Economic Analysis

10. Corporate Tax Rates

11. What’s Ahead:2010 and Beyond

12. How Much Confidence Do You Have In …? (Percentage answering either “great deal” or “quite a lot”)

13. Pelosi’s Leadership Impacts Ratings 21% Oct

14. What’s Ahead in 2010 • Healthcare • Cap and Trade/Global Climate Discussions • Sweeping Tax Legislation

15. Expiration of Bush Tax Cuts • January 1, 2011: • Individual income tax rates • Top rate goes from 35% to 39.6%. • Bottom rate goes from 10% to 15%. • Remaining rates also rise. • Top capital gains tax rate goes from 15% to 20%. • Top dividend tax rate increases from 15% to 39.6%. • Estate tax • Repealed for one year in 2010. • Returns in 2011: • Exemption of $1 million (down from $3.5 million in 2009). • Top 55% rate (up from 45% in 2009).

16. Growing Reach of Individual AMT • AMT in 2010 • Affect more than 30 million taxpayers (17.9%). • Raise more than $119 billion. • Impact on upper-income earners • 52.9% of taxpayers with AGI between $75K and $100K. • 85.6% of taxpayers with AGI between $100K and $200K. • 98.1% of taxpayers with AGI between $200K and $500K. • Cost of AMT repeal • $950 billion (FY 2010-20).

17. President Obama’s Campaign Tax Proposals • $1 trillion in tax increases (few details) • AMT Patch • Change tax carried interest to regular income from capital gains • Hedge fund investment returns reclassified for fund managers • Impose income tax on publicly traded partnerships • Close “loopholes” in corporate deductibility of CEO pay • Freeze estate tax at 2009 levels, retain gift tax • $3.5 million exemption ($7 million for married couples) • 45% top rate • About 8,000 estates taxed per year

18. Rangel’s “Mother of all Tax Increases” Bill • “Tax Reduction and Reform Act of 2007” • Sitting in a drawer waiting for major tax legislation • Repeal individual AMT ($795 billion) • Increase standard deduction, expand EITC, expand refundable child tax credit ($86 billion) • 4.6% surtax on AGI above $250,000 or above $500,000 for joint filers ($700 billion) Dollar amounts are 10 year estimates

19. “Mother of all Bills” Business Tax Increases A Small Sample • Repeal “lower-of-cost-or-market” inventory valuation rule -- $7 billion. • Ensures inventory on the balance sheet is valued at a realistic number. • Repealing LIFO eliminates a “tax deferral” and is a more conservative measure of the financial condition of the business and the economic income to which tax should apply. • Repeal 2004 interest allocation rule -- $26 billion. • Designed to prevent double taxation when the same income is subject to tax in two countries. • Stretch section 197 intangibles amortization period to 20 years -- $21 billion. • Goodwill; Going concern value; Lists or other information concerning current or prospective customers; Patents; • Clarify economic substance doctrine -- $3.6 billion Source: H.R. 3970

20. Top Tax Rate?

21. Who will pay the taxes? • Top 1% paid 40% of the Federal Income Taxes • Top 5% paid 60% • Top 10% paid 71% • Bottom 50% paid 3% • 32% of all taxpayers paid no income tax at all

22. GET INVOLVED IN THE POLITICAL PROCESS

23. Expect the Unexpected