Monthly Econ & Law Update

November 2023

Legal Developments 

The IRS has released inflation adjustments affecting taxpayers. Among them, the estate, gift, and generation skipping tax exemptions increases to $13.61 million on January 1, 2024.  Currently, it is $12.92 million. Under present law, the exemption amount is effectively cut in half on January 1, 2026.  As such, it is important to use the exemptions before then, or they will be lost and could result in estimated tax increases exceeding $3 million.  As such, use in advance of reduction is a significant estate planning consideration at this time.  Additionally, the annual gift tax exclusion has increased from $17,000 to $18,000 per done effective January 1, 2024.

Economic Observations

The Fed appears content with allowing the increase in long-term interest rates constrain the economy, in its battle against inflation.  This has institutional investors gambling that a soft landing will occur, without a meaningful recession.  The CPI was recently measured at 3.2%, with less government spending to produce it, but still positive in increasing prices- just not as fast as has been over our recent history. Some analysts predict a recession in 2024, while others believe a strong economy and labor market will prevent us from having one. The stock market has reacted with a belief that the Fed will either not raise its key Fed Funds rate or just one more time, and will potentially begin reducing them in 2024, which will enhance market values.  Nevertheless, without earnings increases (with a questionable recession as a headwind), a current price earnings multiple exceeding 20% appears to provide some risk that equity markets may be overvalued.