Tax Reform is Coming, Tune Out the ‘Noise’
Taxation, the power to destroy, has exploded at the federal level, as well as at the state and local level.
To see 1st hand how taxes can destroy, one need look no further than Philadelphia, there soda sales have fallen 32% thanks to a tax on the sugary drink’s sales that adds about a 50% total checkout price relative to the shelf price.
The stated reason for the tax was to fund budget gaps by punishing those who enjoy carbonated sugary drinks. Results speak for themselves. When consumers see what they are paying with taxes, they do without or shop where there are no such taxes.
As a result, both Coke (NYSE:KO) and Pepsi (NYSE:PEP) are laying off employees at their local Philadelphia operations. And the market has been sending them a warning signal, and the government has speed up the process.
Many Americans are migrate to places with lower taxes.
Florida and Texas are fast-growing states, thanks to an exodus of taxpayers states like California, New York, and New Jersey. These fast-growing states are growing because taxes are lower.
But, hang on not all taxes are avoidable.
There is the federal income tax. And, should one die at some point with a few million Bucks in the bank, there’s a tax for that too. The 3 certainties in life are death, taxes, and the death tax.
Americans see, under the Trump Presidency, the prospect of the biggest overhaul in the tax system since Y 1986.
Recall, that in Y 1986, there were no smartphones, no online banking, only a few home computers. Stocks were still quoted in “teenies”. Our economy was grounded in the physical and tangible, not the advances of the Digital Age. While that has moved forward, the US tax system has not
Enter President Donald J. Trump.
President Trump has placed Big reform ideas on the table, using a strategy straight out of his best selling book “Art of the Deal” asking for far more than he’s likely to get, for the sake of getting as much as possible.
For instance, President Trump is looking to cut tax rates on pass-through entities like LLC’s down to 15%. And to cut the corporate tax rate from 39 to 35%, plus eliminate the estate tax aka death tax..
Those are just some of the proposals put forward last week to significantly overhaul, and greatly simplify, the US tax system, a system that needs reform. But in the interest of not blowing up the budget too much there are some simplifications to the tax code that may not sit well with the “tax & spend” elite politicians.
Every tax proposal from our President will face challenges.
Behind every carve-out, exemption, and “loophole” is a group that will benefit from the rule change. Simplifying the tax code as part of a broader overhaul will bring out these special interest groups. That is why the tax code got so complex and messy in the 1st place. It’s also a good argument for why simplification is needed.
The Big Q: What is a “taxpayer” investor to do in here?
The Big AL With tax rates on capital gains and dividends unlikely to change under the current proposal, few changes are needed. Dividend tax rates, already as low as 15%, create a powerful incentive to invest and generate income that way rather than work for a living. And capital gains rates, both short-term and long-term, are competitive with such rates in other countries, unlike corporate tax rates.
Any changse in differed retirement accounts will likely be phased in, so do not give up on the tax advantages of a 401(k), IRA, or Roth IRA for Y 2017.
Things may change, or they may not change, my call is that “Things Change”
It is not time to put in changes, but those changes will not come easy and it will interesting to watch happen.
So, think about this, as the tax system changes investors will want to think differently about how to invest.
And for now tune out the Noise, and pay attention to the facts.
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