After months of planning, negotiating, forward progress and random setbacks, the Republican tax bill has finally been revealed.
For months, I’ve been telling you that the new tax bill will be a big positive for investors like you and me. And after spending time this weekend pouring over the details of the bill, it’s clear that this bill will go a long way towards building and protecting your wealth.
The bill isn’t perfect. (Far from it).
And it still has to be debated and passed by both the House of Representatives and by the Senate. So there could be some changes along the way.
But for now, Trump’s new tax bill looks like a big win for retirees and those who are building their retirement wealth.
Let’s take a look at some of the features of this new tax bill…
Corporate Tax Rates Slashed
The biggest change with the Republican tax bill is that corporations will soon pay much lower taxes on profits.
Currently, corporations pay a top tax bracket of 35% on earnings. For publicly traded corporations, the remaining 65% of profits is eventually passed on to investors where profits are taxed again at the personal level.
It’s a terrible setup for the government to tax the same earnings twice in my opinion.
And while the new tax bill won’t do away with the “double taxation” process, it will cut the corporate tax rate to 20%.
The lower tax rate will make U.S. companies much more competitive with international peers. And with 80% of profits now being kept by corporations, there will be more capital available to invest in growth opportunities.
Over time, these opportunities will drive more hiring, will lead to a stronger job market, and will benefit more Americans.
If you listen to the biased financial media, you’ll probably hear that this tax cut only benefits the “greedy corporations.”
But remember, publicly traded companies are owned by a very wide body of investors (either through direct stock investments, or through mutual funds). So even though this bill is good for corporations, it is even better for the people who own these corporations.
And those “people” are you and I!
So a lower corporate tax rate should be a big plus for investors, and for Americans looking for great jobs at great corporations.
A New Incentive to Bring Cash Back Home
One of the portions of the bill that I’m most excited about is the “repatriation” portion.
U.S. companies that generate profits outside the U.S., currently have to pay taxes of up to 35% to bring international profits back into the country. (This is after paying taxes in whatever country these profits are generated).
It’s a burdensome rule that has led big companies to stockpile trillions of dollars collectively in overseas bank accounts.
This is money that technically belongs to us as investors in these companies. But it’s money that is essentially being held hostage by exorbitant U.S. tax rates.
According to the new bill, overseas profits will soon be “repatriated” (or brought back into the U.S.) by paying only a 12% tax rate.
Again, this isn’t a perfect scenario, but it is far better than the 35% rate corporations currently have to pay to bring cash back into the country.
This new repatriation rate will trigger a massive shift in capital across country borders. And it will set off a very big wave of dividend payments, share buybacks and growth opportunities.
I’ve already put together a special report for members of my Lifetime Income Report dividend letter that identifies the U.S. companies with the most to gain from a lower repatriation tax bracket.
If you haven’t yet taken advantage of these opportunities, now is the time to get started… Before the new tax package is passed into law and the corporate cash starts flowing back to the U.S.
More “Free Market” Pressures for Cities and States
I’m a big fan of free market dynamics.
It makes sense that if people (and corporations, and even governments) make decisions based on supply, demand, and other economic dynamics, there will be natural incentives to make wise decisions.
That’s why I’m actually a fan of one of the most controversial sections of the new tax bill.
In order to offset lost revenue from some of the bill’s tax cuts, the new tax plan will not allow individuals to deduct state and local taxes from their income before calculating their Federal tax.
This is a big drawback for citizens who live in heavily taxed locations such as New Jersey and New York. If you currently pay a high state income tax, you’ll be disappointed to see your Federal tax bill isn’t offset by the taxes you pay to your state.
This will make it less attractive for people to live and work in these highly taxed locations. And it will provide an incentive for states and other local governments to charge their citizens more reasonable tax rates.
Think about it for a second…
A new, growing company may want to set up shop in New York City to tap into the city’s vast talent base and business infrastructure. The current state and local tax deduction makes it easier for New York State and New York City to charge higher taxes, because individuals can deduct these costs from their Federal income.
But without that deduction, it becomes much more expensive to live and work in New York.
And so businesses may decide to set up shop in a neighboring state just to help employees avoid burdensome tax liabilities.
In order to attract businesses and citizens, New York will naturally have an economic (or free market) incentive to lower taxes and operate more efficiently. That’s a “free market” force helping to make things better for citizens even in more highly taxed locations.
So while there will be some short-term frustration and pushback on this particular clause, I think the long-run benefits of a free market approach to local taxation will benefit Americans across the country.
There are other nuances of this tax bill that we’ll continue to discuss. And of course there will certainly be some compromises and modest changes as the bill works its way through Congress.
So stay tuned to The Daily Edge for updates on this important tax packages along the way.
Here’s to growing and protecting your wealth!
5 Must Knows For Monday, Nov. 6th
Saudi Drama- What a weekend in Saudi Arabia. We’ve talked about Saudi Crown Prince Mohammed Bin Salman before — calling him The World’s Most Dangerous Man. But this weekend, he took that moniker to a new level by arresting at least 17 high-ranking officials and princes on “corruption” charges. Is this really an honest deed or are there political motivations at play? This is a story that we’ll have more on this week.
Earnings Rolls On- So far, over 75% of S&P 500 companies have reported earnings. And of those companies, 74% have exceeded expectations. That’s good news for the bull market. But earnings season still isn’t over! This week, Disney, Nvidia, Snap Inc. all report earnings. In addition, big retailers like Macy’s, JC Penney, Nordstrom and Kohl’s also report.
Another Fed Vacancy- One more major shakeup on the Fed Board. New York Federal Reserve Bank President William Dudley has announced his retirement effective mid-2018. Dudley was a key figure during the financial crisis and has been seen as an ally of Janet Yellen during her term. According to CNBC, this news is in no way related to Trump’s nomination of Jerome Powell.
Cue Tax Bill- Revisions on the GOP’s tax bill start today. House Speaker Paul Ryan says there is a “host of ideas” being considered, though he expects the basic outline to remain intact. Republicans have also self-imposed a deadline of Thanksgiving to have the final version of their bill on the House floor.
Economic Data- On Tuesday, Eurozone retail data is scheduled to be released. On Wednesday (U.S. time), the Chinese producer and consumer price index will be released. And on Friday, the University of Michigan will release its consumer sentiment data. Figures like these will need to be positive in order for the current stock market valuations to be supported.