TGIF! The Drama of Taxes

“In this world nothing can be said to be certain, except death and taxes.”

Benjamin Franklin

Though a necessity to keep our government running, few, if any, enjoy paying taxes.  To many Americans, TAX is a 4-letter word.  The roots run deep in our nation’s history, in dramatic fashion.  On a December evening in 1773, a group of Patriots disguised as members of the Mohawk tribe, dumped over 300 chests of British tea into Boston Harbor.  It was a coordinated revolt against British taxes, with a rallying cry, “No taxation without representation.”  Two years later, Patrick Henry made his impassioned speech for freedom, urging the famous words, “Give me liberty, or give me death!” Political theater has been around forever, and it often involves the subject of taxes.

The White House announced it is preparing what is being called the biggest tax cut in U.S. History.  The goal is to cut taxes and simplify the overly complex US tax code.  That sure sounds good on the surface, but like most complex issues, what matters comes below the surface.  We’re still digging into the limited details.  The Wall Street Journal described the tax plan as heavy on ambition, light on technical detail and likely to drive up budget deficits.  Treasury Secretary Steve Mnuchin announced the new corporate tax rate will be at 15%, a sharp cut from the current 35% Federal rate.  The proposal reduces the number of brackets from 7 to 3.  The top tax rate for individuals would be 35%, down from today’s 39.6% top rate.  Lower brackets would be set at 10% and 25%. Individuals would no longer be able to deduct the state and local taxes from their reportable Federal income. That would significantly impact residents of high-tax states like New York, New Jersey and California.  The controversial Border Adjustment Tax was not in the proposal.

As mentioned on numerous occasions, we believe tax-reform would be very positive for investors.  The Market has gone a long way to price a deal in.  We don’t think it has priced this current plan in, partly because it is void of many details.  We also don’t think Congress will pass a 15% corporate tax rate.  Something in the 22-28% range is more likely.  But deficits matter.  Officials argue that the $4 Trillion over a decade that would be lost will be made up for by greater economic growth, which will bring in more taxes, even at lower rates.  Secretary Mnuchin said that eliminating various deductions, such as state and local taxes, along with stimulating economic growth and closing loopholes will help the tax plan pay for itself.  The Bond Market does not like the bloated US budget deficit, and will sniff out the merits and costs very quickly.

Without skipping a beat, fans and critics alike, seized the opportunity to offer an opinion on the new tax plan.  The curtain is wide open for the dramatic performances on Capitol Hill.  Congress will be debating the merits of tax-reform while they argue about keeping our government open for business.  In case you were wondering, Saturday’s deadline was extended another week.

TGIF! Tax & Drama

Drama has become a growth industry in the US.  Cable news and social media are certainly enablers.  There’s good drama, and the not-so-good variety.  Of course, it’s all very subjective.  Hamilton took Broadway and the rest of the country by storm and reminds us about our Founding Fathers’ commitment and the power of the American dream.  Drama can touch us all, intellectually and emotionally.  It’s real, it’s human.  My 3 little girls were in their school musical last night and will be again tonight.  Seeing a cast of 1st thru 5th graders on stage warms your heart and makes you smile.  Unfortunately, political drama doesn’t always share the same authenticity.  I would argue the word “drama” also belongs to Mr. Franklin’s list of certainties, with death and taxes.

Bottomline, this is merely a start to the process of tax-reform.  The political theater in Washington will be heated and extensive.  The fact that tax-reform’s officially on the table is an important thing.  The Market likes it.  Now it’s all about execution.

We’re here and we’re on it.  Have a great weekend.  We’ll be back, dark and early on Monday.


Subscribe to Our Newsletter

And receive our free “Investing From A to Z” ebook.

Roads to Retirement Virtual Road Trip

A FREE 10-week email adventure as we journey together towards retirement readiness. Whether you’re just starting your engine or cruising into retirement, our experts are here to help you plan the perfect route.