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Dear Red Alert Reader,
The Taxman is coming… and he is hungry.
U.S. President Joe Biden and his crew of Big-Government associates have unveiled a budget that tips the scales at a whopping $6 trillion. There's something for everybody in this package – with tax credits, giveaways, and government programs of all shapes and sizes.
This Biden bacchanal would make Franklin "New Deal" Roosevelt and Lyndon "Great Society" Johnson green with envy. President Biden is laying out one of the most "expansive" budgets anyone has seen since the 1960s. Even Jimmy Carter couldn't have dreamt all this up.
Want some examples? I'm talking about:
- Free school for some folks from pre-school up through college.
- Two years of community college, free for everybody.
- A full $1 billion increase in food stamps.
- Massive tax breaks for electric vehicles.
- Big bucks for renewable energy.
- Yet another infusion for healthcare.
Of course, nothing comes free. And that includes the Biden spending plan, which creates a deficit of $1.8 trillion this year and $1.3 trillion a year over the next 10 years – resulting in a national debt of $39 trillion (117% of projected GDP) by 2031.
Here's the problem: Somebody will have to pay for all this.
That "somebody" is you and me. And those payments can be made only one way – through higher taxes. Ruthlessly higher taxes.
Call it the "Biden Tax Bite," and there's only one way to beat it – by getting out in front of it.
I've hand-selected six stocks and funds – a veritable "game plan" – that will put you far out ahead of the tax-hike tidal wave coming our way…
The Tax Terror Looms Out There
Even after taxes rise, there will still be a deficit of almost $2 trillion, which means after the budget is passed, there will still need to be higher taxes down the road.
Biden has promised that the taxes will hit corporations and the wealthy, but anyone who believes we won't feel the squeeze from those tax hikes has another thing coming.
Businesses will pass those increases on to us in the form of higher prices. Cryptocurrencies will lose their "free as the breeze" status. Capital-gains tax hikes will wreak havoc with stock prices.
That retirement nest egg may look a lot smaller up close than it did 10 years before the "Golden Years Finish Line" – courtesy of lower after-tax income and slashed securities gains.
Even the 2017 "Trump tax cuts" will all expire.
The stepped-basis-at-death rules – the ones that let parents transfer assets to their kids with a basis on the day they died, instead of on the day the stock or house was purchased – will also disappear as Washington hunts for funding like it's loose change in the couch cushions.
There are also provisions that require financial institutions to tell the government about every transfer over $600 – an unconscionably low threshold. And of course, the Biden budget expands the Internal Revenue Service (IRS), so it can hire an army of tax collectors to chase down every penny.
Yep, the Taxman is coming, and there's no way to stop him.
The good news, like I said, is you can stay ahead of him – on a permanent basis. I shared these plays with my free Total Wealth e-letter subscribers the other day, and now I'm sharing them with you.
The solution is elegant, deceptively simple, and, when you think about it, poetic justice: You can offset the ravages of higher taxes by cashing in on the wave of federal spending that taxes will be hiked to pay for.
There are six stocks and funds I'd recommend to get set up…
Biden Tax Bite Beater No. 1: Shield Thyself
This move is a great one because it's so easy to engineer. You simply divert savings from taxable funds into tax-free income funds.
I like using closed-end fund specialist River North out of Chicago for tax-free income. They have a fund called the RiverNorth Flexible Municipal Income Fund (NYSE: RFM) that shifts money between a tax-free institutional manager, MacKay Municipal Managers, and tax-free closed-end funds based on market conditions. When closed-end fund discounts are wider than average, the fund over-allocates to tax-free closed-end funds. When those discounts are narrower than normal, they add to the institutional account. The fund is currently yielding 4.1% that is tax-free at the federal level. There is going to be a lot of tax planning and asset shuffling going on to help investors.
Biden Tax Bite Beater No. 2: Bet on the Helpers
Financial gyrations will be the order of the day as investment advisors work to outrun the Taxman.
That's extremely bullish for the advisors of Focus Financial Partners Inc. (NASDAQ: FOCS). Focus Financial has grown by buying smaller registered investment advisor (RIA) businesses across the United States and aggregating them into one single, big firm.
The Toxic Stock Watchlist: Avoid these names at all costs.
This allows the smaller firms to gain the benefits of size and scale, making them more competitive and more profitable. Focus has been moving aggressively to expand its presence in the ultra-high-net-worth market with a great deal of success. These are the folks that the tax increases will hit the hardest, and they will be more than willing to pay for solutions that allow them to keep the Taxman's hands off their cash. The deals market in the RIA market is also very attractive, and that should help drive even greater earnings for Focus.
Biden Tax Bite Beater No. 3: Ante up on Annuities
If there's one group that will have a veritable field day with higher tax rates, it's the folks who sell annuities. Now, I have to say I detest variable and index annuities – they're expensive to own and usually don't perform as well as promised. I could go on…
But they are an "easy sell," thanks to tax deferrals and promises of grabbing most of the stock market's upside with none of its downside. And sales of these products are likely to skyrocket as investors look for places beyond the Taxman's reach to stash savings.
That should be very good for American Equity Investment Life Holding Co. (NYSE: AEL), one of the largest U.S. providers of indexed annuities. Sales are already accelerating, as revenue rose to a record $2.4 billion in the first quarter. And as tax talk spirals higher, so will American Equity's revenue and profits.
Biden Tax Bite Beater No. 4: Surf the Spending Wave
I've been talking about this since before the election: We need to track where the money from the new budget will be spent and align our investing accordingly.
A wave of that cash will go into construction – buildings and infrastructure, including a flood of government infrastructure and buildings in the budget.
That's extremely bullish for PAE Inc. (NASDAQ: PAE), a Falls Church, Virginia-based government contractor that has its hands in global security, infrastructure, outsourcing, construction, training and testing, and even space services – every one of them a "front-burner" enterprise for the United States and its allies. There are budgetary provisions for border-and-homeland security, cybersecurity, and the U.S. armed forces. All of this is good news for PAE, which also manages one of the largest portfolios of U.S. government contracts for critical infrastructure management and support of space missions.
Biden Tax Bite Beater No. 5: Energize Your Gains
A big part of the Biden spending plan will focus on clean energy – which CNBC and yours truly have said could be a "windfall for investors."
Willdan Group Inc. (NASDAQ: WLDN), an engineering and energy solution that has worked with governments, education systems, healthcare facilities, and data centers to make their building-and-operations more energy efficient. The company designs and builds power systems, including distributed-energy resources and renewable power sources – like solar, energy storage, cogeneration, wind, and fuel cells.
If all that sounds familiar, it's because it's ripped right out of the progressive playbook for energy spending that President Biden has embraced. Willdan provides specialized software to optimize buildings, programs, and power grids. This software is used by architects, engineers, facility owners, city governments, grid owners, and over 100 utilities across the United States. Renewables and the grid get a lot of money from the proposed budget. Willdan already has relationships with the folks that will be handling these projects and should get a nice boost in contract awards and profits.
Biden Tax Bite Beater No. 6: Get Healthy
Healthcare will be a star of this budget plan – and healthcare-player ModivCare Inc. (NASDAQ: MODV), formerly known as Provident Services, should also see massive cash inflows from this budget.
ModivCare does in-home and on-site care optimization services, including comprehensive health assessments, using a network of local doctors and a fleet of mobile health clinics. It also provides transportation for home-healthcare patients who can't afford hospital care or have special needs. It also provides personal and home care and nutritional meal delivery.
Last year, ModivCare provided 48.2 million trips for more than 30 million patients across its national network of 5,700 third-party transportation providers and more than 30,000 respective drivers. It also spent $575 million in cash to buy Simplura Health Group, which operates a large network of home health and personal care agencies across seven states.
The profits you stand to make will more than offset any tax bite, but you've got to admit, a plan to position your money in industries poised to soar… on a wave of tax-financed government spending… has the ring of poetic justice to it.
It really goes to show you how playing the prevailing trends – even tax hikes – can be an incredibly easy way to cash in. "The trend is your friend," as they say on Wall Street.
The Biden administration is ushering in an economic shift that could blindside average Americans. Tune into my brand-new “Buy This, Not That” Session to find out exactly where not to invest – the overblown, debt-ridden names that smart investors should steer clear of. Go here to watch this critical video now.