1. 1 The Financial Planning Association Philadelphia Tri-State Area 18 th Annual Spring Symposium May 2, 2005 Cincinnati Cleveland Columbus Costa Mesa Denver Houston Los Angeles New York Orlando Washington, D.C. International Affiliates São Paulo, Brazil Juárez, Mexico www.bakerlaw.com

2. 2 Tax Policy Update: A View From Inside The Washington Beltway Prepared for The Financial Planning Association by Edward Jay Beckwith Partner Baker & Hostetler LLP Washington, D.C. Mr. Beckwith can be reached at beckwith@bakerlaw.com © 2005 Edward Jay Beckwith

3. 3 PAIN BY THE NUMBERS CURRENT FEDERAL DEBT GOVERNMENT EXPENDITURES ARE RISING FASTER THAN REVENUES

4. 4 PAIN BY THE NUMBERS (Continued) DEFICITS ARE PROJECTED EVERY YEAR THROUGHOUT THIS DECADE (AND BEYOND?) ARE ADDITIONAL TAX CUTS POSSIBLE? ARE TAX INCREASES INEVITABLE?

5. 5 THE PUBLIC WANTS SECURITY AT HOME SECURITY ABROAD ENERGY AND TRANSPORTATION EDUCATION

6. 6 THE PUBLIC WANTS (Continued) GOVERNMENT BENEFIT PROGRAMS –SOCIAL SECURITY –MEDICARE/MEDICAID

7. 7 THE PUBLIC WANTS (continued) –PRESCRIPTION DRUGS –WELFARE PUBLIC WORKS AND ON

8. 8 THE PRESIDENT AND CONGRESS TALK TAX CUTS FIND IT HARD TO CUT PROGRAMS HAVE NEW PROGRAMS AND PROJECTS TO FUND

9. 9 WHICH FICTION DO YOU WANT TO APPLY? DEFICITS DON’T MATTER GOVERNMENT CAN/WILL GET SMALLER ECONOMIC GROWTH SOLVES ALL PROBLEMS

10. 10 A PERIOD OF PROFOUND UNCERTAINTY FEDERAL TRANSFER TAXES –ESTATE TAX –GST TAX –GIFT TAX

11. 11 A PERIOD OF PROFOUND UNCERTAINTY (Continued) STATE TRANSFER TAX AND THE DEATH OF THE STATE DEATH TAX CREDIT INCOME TAX REDUCTIONS

12. 12 MORE UNCERTAINTY: TAXES ARE ALWAYS CHANGING FALLING OFF A CLIFF TAX ACTS NEARLY EVERY YEAR CONSUMPTION TAX CREEP

13. 13 MORE UNCERTAINTY: TAXES ARE ALWAYS CHANGING (Continued) ONGOING CONGRESSIONAL OVERSIGHT ONGOING IRS REGULATORY PROJECTS LAX ENFORCEMENT/INCREASED ENFORCEMENT

14. 14 REFORM: MORE TALK THAN ACTION? “ BLUEPRINTS FOR BASIC TAX REFORM” (1977) “TAX REFORM FOR FAIRNESS, SIMPLICITY AND ECONOMIC GROWTH” (1984)

15. 15 REFORM: MORE TALK THAN ACTION? (Continued) “THE PRESIDENT’S TAX PROPOSAL TO THE CAMPAIGNS FOR FAIRNESS, GROWTH AND SIMPLICITY” (1985) PRESIDENT’S ADVISORY PANEL ON FEDERAL TAX REFORM (2005)

16. 16 DON’T BE STAMPEDED ! DON’T MAKE PROFESSIONAL JUDGMENTS BASED ON THE HEADLINES, HYSTERIA, THE “ISSUE OF THE MONTH” OR EVEN THOUGHTFUL SHORT-TERM ANALYSIS

17. 17 DON’T BE STAMPEDED ! (Continued) USE YOUR OWN COMMON SENSE!

18. 18 SOME POLITICAL REALITIES RISING DEFICITS POLITICAL STALEMATE TICKING TIME BOMBS LONG-TERM PROBLEMS ARE HARD TO ADDRESS POLITICALLY

19. 19 SOME PREDICTIONS FINGER POINTING MODEST ADJUSTMENTS FEW IF ANY LONG TERM FIXES CONTINUED UNCERTAINTY

20. 20 QUESTIONS?