A Flood of Feedback on the Future Taxman

It’s only been a day since the Trump administration presented the major tenets of its tax-reform proposals to the nation.

The response has been predictable. The plan is taking heavy flak from opponents, and being unduly praised by proponents.

Hey, that’s the reality of the political climate we live in today. Half the country thinks everything the president does is wrong, while the other half thinks he can do no wrong.

This sad state of the nation tends to obscure legitimate concerns, criticisms and virtues of any policy proposal. And tax reform is no exception.

Here’s a reminder of the main points in what the administration is calling the "biggest tax cut" in U.S. history:

  Deep reductions in both business and individual tax rates.

  A top federal tax rate of 35% for individuals, down from the current top federal rate of 39.6%.

  A reduction from seven tax brackets to just three: 35%, 25% and 10%.

  Doubling of the standard deduction for individuals (i.e., less of your income would be taxed).

  Elimination of the state tax deduction from reportable federal income.

  A reduction in the corporate tax rate from 35% to 15%.

There are other details of the plan, and many more details still to be worked out by Congress. But there is no denying that if even just some of the proposals become law, the taxman is going to cometh for a lot less of your money.

As is usually the case, Afternoon Edition readers have many thoughtful, opposing and provocative things to say about the tax issue.

And since this issue affects nearly all our pocketbooks, I thought it would be helpful to let readers have their say on the pros and cons of the Trump plan.

Jim writes

It is interesting how the market can be steered by a myopic focus … in this case reduced corporate taxes. In my view, it starts with government spending, not taxes. We need to look at all the places where government gets money from as part of this discussion. If spending is flat (yes, tell Congress to hold spending flat … good luck with that), then if corporate taxes go down, individual taxes must go up to stay even! This could be very painful for folks caught in the middle where they are barely making ends meet.

Brad response: Thanks for your insights, Jim. The idea being pushed by the Trump administration is this: The cuts will create enough economic growth to make up for the shortfall created by lower tax rates. That’s because there would be increased tax revenue on all the new economic activity.

This is the idea that we can grow our way into more revenue for the government, while also maintaining (or even increasing) the current spending level.

In theory, this could work. But most independent policy organizations on both the left and the right side of the political spectrum think this is unlikely.

My solution to this kind of revenue shortfall into the government is to radically reduce the amount of things government does.

Now, that libertarian view isn’t likely to make it through to policymakers. It would deprive them of their power. However, it would go a long way toward empowering citizens … and that’s what I’m all about.

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Joe the Greek writes

The lowering of the corporate tax rate will increase the coffers of those running the companies. But the trickle-down effect won’t be materialized unless there’s an adjustment made to the import & export tariffs. Yes, of course, with the additional funds there will be opportunities for acquisitions, R & D, increased earnings potential, etc. But given the uncertainties with this administration & global markets, I believe that caution will be the prevailing wind.

Brett writes

The only tax cut that has any value is the business tax cut. And even that will result in very little economic benefit. The country and globe is at peak debt, so spending will be muted until that is resolved. The regulation changes will result in less spending and more executive bonuses.

Jamie writes

I think that any proposal that directly benefits the proposer is disingenuous, to say the least. It also has zero proposals for how to add back the potential lost revenue. It seems to me to be a blatant ploy to his political base and for his own self-interest.

Brad response: Thanks, Joe, Brett and Jamie, for your thoughts. I agree on points such as companies still harboring caution due to the current environment, and the pernicious effect of high debt levels.

What I don’t think is a valid criticism of the tax plan is that it is "disingenuous" because it "benefits the proposer."

Think about that in other areas of presidential politics. If any president argued for, say, healthcare reform, would that president be disingenuous if they directly benefited from doctors?

I know the analogy here isn’t perfect. But I don’t know that President Trump took office so he could change tax laws just to benefit himself. That theory, postulated by much of the mainstream media, essentially obscures the pros and cons of the argument.

I think we will get much further if we look at what the effect of this tax cut will be on our economy, markets and, yes, the people who pay the majority of the taxes in this country. That means business owners and those who earn the highest income.

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Finally, frequent and very thoughtful contributor F151 weighed in with a most-excellent comment, writing

Lower the rates … yes. But just as important is the need to gut the massive code and make it much, much simpler. He [Trump] has said he will do that. I hope he can get the Dems and Reps in Congress to go along. They are all so resistant to change … even change that would be good to the American citizenry.

Ain’t that the truth.

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A change is going to come somewhere else, too. A big one. A good one. And it’s going to take place in gold …


Mining for Money

You’re Exiting Gold’s Worst Months — The Best is Yet to Come
By Sean Brodrick

Boy, gold is having a tough slog in April — and that comes on the heels of rough March.

This is no surprise for calendar traders, though. They know that the best time of the year for gold is yet to come.

And by that, I mean it’s well-known that gold performs better in the second half of the year.

This is due to seasonal buying. In August, jewelers around the world traditionally stock up for various cultural holidays. These include Muslim Ramadan, Hindu Diwali, Christmas, and the New Year in China.

This doesn’t mean gold demand and price must rise in the third quarter — it didn’t last year — but it’s more likely to.

However, the worst bear market in precious metals in living memory has taken its toll. Let me show you a chart and you’ll see what I mean.

Data source: Stockcharts

This is gold performance by month from 2006 to 2016. The chart separates the performance of gold by individual months. So all the January performances are averaged together, and so on.

Heck, looking at that, you can’t be blamed for thinking you don’t want to stick around for May.

But this is the bear-market effect. It has warped the regular market trend. Take a look at gold performance over the longer term — from 1975 to 2016.

Data source: LBMA

You can see that March and April are traditionally months when gold goes down. Gold historically pops higher in May … but the real blast-off comes in the third quarter.

This doesn’t mean gold demand and price must rise in the third quarter — it didn’t last year — but it’s more likely to.

We just exited a 4½-year long bear market in gold. That dragged down the metal’s seasonal performance. And because miners are leveraged to the metal, it hammered mining shares lower.

Now, we’re back in a new bull market. So I would look for a return to the normal trend. That means strong periods of outperformance in the metals and the companies producing them, especially in the second half of the year.

Heck, we may even see better-than-average performance. That’s what bull markets are all about.

All the best,
Sean


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If you have a comment or question about today’s Afternoon Edition topic, or any of the topics we cover, just leave a comment on our website or send us an e-mail.

Good luck and happy investing,

Brad Hoppmann
Publisher
Uncommon Wisdom Daily

Your thoughts on “A Flood of Feedback on the Future Taxman”

  1. Right, repeating the Bush tax/economics formula on steroids, that almost put us into a second Depression, would work really great! Did everyone just lose all their observation skills?! It would be great for Wall St. & the 1%, short term, but wipe out rural America and consumers! Republicans complain about deficits under Democratic admins, but blow them up when in power. Check the records yourself.

  2. In America it is called a “Hail Mary” pass. The business tax cut is one of many changes that must happen simply because America is an incredibly bad spot. Inheritance tax cut, VAT tax, and many more and then comes the other side of which there are far too many to list. The vast world of subsidies will come to an end. In some cases it will be a direct cut and in others the Department will simply disappear. Trump only knows one thing and that is business. If it is not business then it is down the road of change. The last question is how? It doesn’t matter How because there is no value in the currency any more. Debt without assets, loans without interest, and the QE clanger have told us that it is all or nothing because, without an economy there are no rich people. And the rich have seen the ugly truth on their big screens every night for a decade. They have seen millions in the street and empty store shelves so Hail Mary.

  3. Repatriation could work better in a Glass Steagall-ish context. Else the money flares into the ozone as notional value on trading desks, not lent out on Main Street to “make America Great again.”

  4. Congress should simplify the tax code. They win by selling thousands of obscure bought-and-paid-for provisions all over again. Perfect!

  5. There is a lot of talk on the upcoming tax changes. That is good. But what is much less talked about is the repatriation of overseas funds by large US companies. By some estimates, that approaches (or exceeds) 2 TRILLION dollars. Yes, some (justifiably) are worried that whether it is taxed at 5% or 10% or even 15%, the money will go to buy back shares and or boost income of senior management. Why doesn’t the government charge say 15% and then give back 5% as a rebate for companies that do invest in their business, be it hiring new employees, investment in R&D, building new manufacturing facilities. Keep investment in acquiring new companies out of it. And in the future, the government should encourage US companies making money abroad and bringing it back to the USA. I would say that all future money made abroad (and local tax paid), should be able to come back to the USA for free or a maximum of 5% tax. Why not reward (and not penalize) companies that bring money home for the benefit of the US economy? I just don’t understand the thinking of Congress. Or is it just a question of envy by those who think that the “fat cats” will be getting fatter and “we” will get nothing out of it? If that is the case, I smell the aroma of Communism, or at least left wing Socialism.

  6. I just saw this morning on a local news program that most US corporations pay no Taxes to the US government. The ones that do, pay 19%. Donald Trump during the campaign for president bragged that he paid no taxes to the US government. If they get rid of loop holes so that corporations pay taxes, it would probably be a good thing. It was also reported this morning on a national morning talk, news broadcast that the version being offered would add 7 Trillion to the national debt. But of course, deficits don’t matter, and we will grow our way out. Seems like Deja vu. I think I have heard this before.

  7. Trump is first reducing the corporate tax rates to please his, associates and buddies and more important to his own Casino and Land Lording! Even if he leaves the Office in four years,still to reappear this will take some time and during this time his wealth is going to accumulate much faster. He is trying to cut the IRA deductions for the middle class and pushing all the deductions towards his wealthy buddies and associates like the oil magnate and the Golden Sachs Minuchen,who all will be rushing to the banks and fooling the guy who picked them in his cabinet”
    It is like you scratch my back and I will scratch yours”. Middle class hope and pray!

  8. I think that the only way we will get the ultra-rich to actually start the ‘trickle-down’ is to put a caveat on the lower rate for the first five years. So any company making , let’s say 25M gross a year and above, will NOT be eligible for the reduced rate UNTIL they have shown that they have spent a minimum of 10% of their gross profit on adding jobs, expansion, lower level employee raises (maybe even add some emphasis on this one!) or some other means of improving the economy. Once they do that and include that in their five and ten year business plans, then and only then would they be able to receive the lower tax rate.

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