Trump and Taxes

It’s looking like a Trump administration combined with a Republican congress makes for a very business friendly, as well as corporate and income tax friendly, environment.

The domestic stock markets are happy with the Trump presidency. And while there may be encouragement or consternation for you depending on where along the political spectrum you fall, from a cash flow and income tax perspective, you will likely benefit all the same.

So, what’s behind the recent gains and what, if anything, do we know about tax-related changes (likely) coming for 2018 and beyond?

There are 6 salient buckets that have significant proposals that could lead to an increase in your cash flow and (likely) higher Balance Sheet valuations, and 1 salient bucket that could lead to a profound decrease:

  1. Income tax brackets proposed to be compressed and lowered to 3 (all are Married Filing Jointly thresholds; Single likely to be 1/2 threshold):
    1. 12% rate (up to ~$75,000 income )
    2. 25% rate ($75,000 to $225,000 income)
    3. 33% rate ($225,000 and above)
  2. Corporate Tax Rate
    1. 15% (vs. today’s 35% rate)
    2. This one is partially why the domestic stock market has been so nuts this last month.
      1. It’s pretty significant. It directly leads to higher profits, everything else being static.
  3. Repeal of Affordable Care Act
    1. If this gets repealed, will immediately remove the existing 3.8% tax on net investment income.
  4. Elimination of the personal AMT
    1. This would greatly simplify your income tax preparation.
  5. Creation of a Dependent Care Savings Account
    1. $2,000 annual contribution per dependent (child or elder).
    2. No income limits
  6. And, in general, a ‘loosening’ of various regulations, which are TBD but are very likely to occur.
    1. Less regulations tend to correlate with higher profits for the affected companies, usually manifesting into higher profits.
  7. Repeal of Dodd Frank act
    1. Well, this one is very likely to happen. Unfortunately, it may not bode well for any of our Balance Sheets.
    2. Why? Because it was an answer to the whole 2008 meltdown to begin with. Repeal it and we are in many ways right back in the environment that caused the 2008 Great Recession.

We are almost one year into this presidency. While nothing concrete has happened yet, with a unified Congress and President, we are looking at very high likelihoods of all of the above occurring.

(Disclaimer: This post is intended as politically neutral. The next 3 years will be, at a minimum, interesting times. Hopefully, for you and me and all of us, in mostly good ways.)