In a nut shell Tax cut/Job act passed

[audreyh1]

I think this was already baked in. Who's to say which is right?

Keeping this on the economics side of things, I believe the AT&T and W-F announcements were a marketing/publicity stunt. They've got cash sitting around anyway and I believe they figured it was worth the commitment of cash to employees now to make the new corporate rate look good, thereby improving the public perception and perhaps defending the lower rate in the future. The future of this lower corporate rate is by no means assured for the long-term (or perhaps even a few years).

For the businesses of this country to be able to keep this windfall, the tax-paying individuals have to believe it really is good for them.

That’s what I think - certainly smells like it.

 

[Bir48die]

For me the ACA greatly reduced rates before slowing the increase in them. In 2018, my rate (excluding the small subsidy, if I qualify for it) will be about the same as what I paid in 2010. From 2009-2011, pre-ACA, I saw my rates rise by nearly 50% in 2 years. Under the ACA, after my rates dropped a lot, my rates grew by nearly 50%, but at least it took 4 years (2014-2018) for that to happen.


I shudder to think how much I'd be paying without the ACA, or what I would have been on the hook for back in 2015 (when I was in the hospital) if I had been underinsured.

This isn't my situation. Just sayin'

 

[GTFan]

At best, I will save a little bit on my taxes and be able to file using Form 1040A, a simpler form.

Yeah, about that - what happened to a 'simpler tax code' and 'you'll be able to file on a postcard'? All we did here is shuffle the deck chairs around IMO, while simultaneously jacking up the deficit.

As investors we're all going to benefit from increased corp profits, but let's see if that translates into real growth and better-paying jobs.

 

[kcowan]

I appreciate the enthusiasm and optimism expressed in this thread. I was thinking that the stock market impact was already baked in. Maybe not?

I would be interested in any analysis of what the changes do to the effective tax rate to corporations. Will it be close to a 40% reduction?

 

[Cobra9777]

Agreed - it’s quite clear to me that job creation is unlikely to happen as this does nothing to increase demand, and companies will use extra cash to pay down debt (much issued to buy back stock) and buy back more stock like they have for the past many years, rewarding top executives and shareholders. Companies haven’t been investing more in their businesses or hiring for a while now, in spite of already improving economic conditions and super low interest rates. Borrowing has been used for stock buy backs rather than business investment. It’s a bit of a catch 22 - with low demand, there is no incentive to invest more in the business or hire more employees. More cash in hand does not create this incentive - and corporate overall tax rates were already way lower than the advertised high 35% rate, many businesses paying $0. Yet without companies investing in their business or hiring more people, no additional demand is created in the economy. This is where investing in revamping aging infrastructure might have been more effective as it would have created more demand and jobs. But where are funds going to come for this now as I think we just spent it on tax cuts?

With unemployment already at historical lows, companies clearly have no incentive to hire more folks. Focus seems to be more on continuing to streamline - maximizing the profits at current business levels rather than growing the business to capture more and compete. I don’t think more profits will change this. It’s just perhaps more rewards at the current business levels.

Our current slow growth and low inflation is also structural. It’s a combination of demographics and global slower growth due to low demand. 4 to 6%? Who is dreaming?

In terms of benefits to corporations and shareholders, the stock market has already anticipated highly favorable outcomes. I don’t think it will be stimulative to the economy. History shows that when the wealthiest get more income they tend to hoard it rather than spend more.

I think our taxes will be lower, but I’m more anxious about way overvalued markets and taking a big hit to net worth due to markets correcting.

We shall see. I’ll be watching the yield curve. If it continues to flatten then a slowdown/recession is getting closer - the inevitable end to a long expansion. If it reverses direction and starts to steepen then more inflation is showing up and perhaps more economic growth is happening.

+2

New capital expenditures and hiring only happen when sustainable demand increases beyond current capacity. My former Mega has publicly stated that *all* benefits from tax reform will go toward increased dividends and stock buy-backs. The reason is simple... they already have more-than-enough cash on-hand, and generate sufficient ongoing free cashflow, to fund any level of future expansion and hiring, should there be an uptick in demand. They borrowed heavily over the last 5 years at ridiculously low rates and used *all* the proceeds to fund increased dividends and stock buy-backs. They are certainly not alone in this strategy.

Even if the tax reduction spurs some consumer spending (I'm skeptical), there is zero assurance that the resulting capex and hiring will occur in the US. We are still midway through a decades-long period of global wage equalization. It's still considerably cheaper to build a plant and employ people in the developing world than in the US. Most US multinationals don't pay anything close to 35%, so this reduction does little to change the overall equation.

I recently read that the number of open jobs advertised in the US exceeds the number of unemployed. That seems to imply that we have a serious skills mix problem, not an unemployment problem. I would have preferred to see $1.5T spent on infrastructure and education.

Personally, we will see modestly lower taxes in the near-term, mostly because the impact of lower rates will slightly exceed the impact of SALT limitations. Longer-term, with chained CPI and reversion to current rates in 10 years, I'm quite concerned that the tax torpedo just got bigger. I'll be looking at whether it makes sense to do Roth conversions into the 22% bracket.

 

[street]

Thanks for keeping politics out of this thread. This is about taxes for our future and is law so we really do need to see how it will effect our money.

Some very good information and has brought up some good questions.
Thanks

 

[dvalley]

So no more property tax or local income tax deductions, that's not good news for tax payers in states like CA.

Mortgage interest is still deductible from what I read so I guess folks (especially in high priced housing markets) will still see owning a home as a benefit?

I wonder if people will be less inclined to make charitable donations now too since you don't get to itemize, or you might not benefit from itemizing.

 

[Pilot2013]

For me the ACA greatly reduced rates before slowing the increase in them. In 2018, my rate (excluding the small subsidy, if I qualify for it) will be about the same as what I paid in 2010. From 2009-2011, pre-ACA, I saw my rates rise by nearly 50% in 2 years. Under the ACA, after my rates dropped a lot, my rates grew by nearly 50%, but at least it took 4 years (2014-2018) for that to happen.


I shudder to think how much I'd be paying without the ACA, or what I would have been on the hook for back in 2015 (when I was in the hospital) if I had been underinsured.

Individual situations can be out-liers for sure. The Politico report says that "on average" the increase has been 105%. that means for each case like yours, there's one on the other end of the spectrum.

I agree HC Insurance costs have been going up for a long time. ACA did not solve that root cause issue, so the problem continues until it is (HC cost itself).

 

[Clone]

Agreed - it’s quite clear to me that job creation is unlikely to happen as this does nothing to increase demand,
...
With unemployment already at historical lows, companies clearly have no incentive to hire more folks. ....

MegaCorp was involved with heavy manufacturing all over the world. I am seeing manufacturing that had been off-shored coming back to the US. (In the heavy manufacturing arena). A lot of work was sent overseas when the MBAs were preaching that every company should have a significant amount of low cost country sourcing. We were told to source new designs from India or China, even if it was at a cost premium up to 30%. We built factories in India, China, and Mexico. Over the years, some of the shine has dulled from low cost country sourcing. The combination of quality issues coupled with the amount of inventory floating on water creates many problems. And the cost advantages did not materialize to the extent that was forecast.

The new factories in low cost countries were also located with expectations of developing the local market there. In most cases, this has happened. Net result- we need more manufacturing capacity. So I see new manufacturing cells built in the US near the US factories. A combination of automation, a different quality mentality, and a return to just in time delivery can create improved financial results. And it takes people to run these machines and assembly lines.

The new tax & jobs bill may give management a new script to work from when they bring back some of the manufacturing and put in some new assembly lines. Much like the automakers from foreign countries have established US manufacturing or assembly facilities, I think we will see heavy industry grow also.

 

[Travelwanted]

So no more property tax or local income tax deductions, that's not good news for tax payers in states like CA.

Mortgage interest is still deductible from what I read so I guess folks (especially in high priced housing markets) will still see owning a home as a benefit?

I wonder if people will be less inclined to make charitable donations now too since you don't get to itemize, or you might not benefit from itemizing.

No, it is capped at 10,000. So unless your property taxes exceed that it doesn't affect you.

I just read about another change: 529 plans are now eligible to pay for elementary and high school tuition at private schools.

 

[T-Minus]

Has anybody seen a decent before/after calculator that allows you to plug-in your values at a fairly high level, and see what the actual net effects of the new tax law is (including a swipe at AMT)? No - I'm not interested in simple tables that I've been able to find on my own, I want a before/after tool so that I do not have to write my own.

 

[W2R]

Thanks for keeping politics out of this thread. This is about taxes for our future and is law so we really do need to see how it will effect our money.

Some very good information and has brought up some good questions.
Thanks

+1, and thanks for helping to keep the thread on track.

I *finally* ran one of those tax calculators to see if my taxes would rise or fall, and it looks like they will go down about $1500 or so. We'll see. I am trying not to count my chickens before they hatch (as the saying goes).

As for the stock market, I think all that talk is pure baloney. I think the pundits that claim it goes up or down based on news stories, politics, and so on are full of hogwash. I simply do not believe that they have any clue as to why the market goes up and down. Call me skeptical.

If they REALLY knew, they'd all be rich and would have quit their jobs and would have already retired to a luxury villa on the Riviera, where they could be found sipping martinis with the rich and famous or whatever.

 

[W2R]

Has anybody seen a decent before/after calculator that allows you to plug-in your values at a fairly high level, and see what the actual net effects of the new tax law is (including a swipe at AMT)? No - I'm not interested in simple tables that I've been able to find on my own, I want a before/after tool so that I do not have to write my own.

This is the one I used, but warning - - it is VERY simplified and may not be all that accurate. I just used it because it was simple and it was the first one I encountered online. It does not deal with AMT.

Tax Plan Calculator by Maxim Lott

 

[dvalley]

I ran the Maxim Lott calculator and...while I save approx $2400 with the new tax laws, my taxable income is higher than before. The only reason I save $2400 is because of the lower tax brackets (which will revert after 2025 from what i gather).

 

[street]

Thanks for the calculator.

 

[wmc1000]

looks like we will pay about $270 less based on Lott calculator.

 

[Amethyst]

Lott's calculator is the best one out there so far that I've seen. It would be far more useful if it let you enter regular income, dividends and CG which are taxed differently. I've sent that feedback (as many others have, I'm sure).

This is the one I used, but warning - - it is VERY simplified and may not be all that accurate. I just used it because it was simple and it was the first one I encountered online. It does not deal with AMT.

Tax Plan Calculator by Maxim Lott

 

[Lsbcal]

My crystal ball says to bank some of those stock market profits now. Greed is overcoming fear. Maybe a 1962 type decline? Just theorizing here.

 

[mamadogmamacat]

the Lott calculator does not appear to make accurate use of itemization's. perhaps I'm wrong but I thought both charitable and medical expenses were still deductible and those happen to make up the bulk of my itemization's yet if i put zero for itemization I get a couple thousand dollar savings and if i put in my est itemization's I get essentially a wash. In any event, my vote for the essentially nothing its worth is that we will ultimately see a significant benefit in the economy overall and therefore in our investments. What happens in ten yrs will really all be based on what if any of the personal tax changes are made permanent in the interim My worthless vote there is that they all will with perhaps a bit of tweaking in the rates.

 

[Walt34]

If they REALLY knew, they'd all be rich and would have quit their jobs and would have already retired to a luxury villa on the Riviera, where they could be found sipping martinis with the rich and famous or whatever.

Exactly. We recently received a mailing for one of those free dinners for attending some investment seminar at a local restaurant. Really? If it works all that well why are they trying to get investors from West Virginia, one of the poorest if not the poorest, states in the country, with one of the lowest overall rates of education?

Gimme a freakin' break!

 

[pb4uski]

....There are a lot of idle people that might go to work if the wages were high enough. ....

Not me!!!

Idle.... perhaps... might go to work.... nada.

 

[pb4uski]

I think that a lot of companies are already finding it difficult to find projects and opportunities to deploy their current excess capital at more than their weighted average cost of capital and that the new law will exacerbate the problem so we'll see more share buybacks and higher dividends.

I hope I am wrong.

It will be interesting to see if individual taxpayers spend or save what they save in taxes.

We know what Robbie will do, but not everyone else. A repeat of the roaring 20's anyone?

 

[T-Minus]

This is the one I used, but warning - - it is VERY simplified and may not be all that accurate. I just used it because it was simple and it was the first one I encountered online. It does not deal with AMT.

Tax Plan Calculator by Maxim Lott

Thanks W2R! That's exactly what I was looking for and, the good news is that I'll save about $1,323/yr or $110/mo. That said, I'm not going out and increasing spending until I see the final numbers on my actual return (4/15/2019).

 

[fgtayl01]

Ricardo Equivalence - there are winners and losers and the net is still net.

 

[T-Minus]

I think that a lot of companies are already finding it difficult to find projects and opportunities to deploy their current excess capital at more than their weighted average cost of capital and that the new law will exacerbate the problem so we'll see more share buybacks and higher dividends.

I expect to see more M&A activity, moving further down the ROI stack for products/initiatives, increased R&D spending, some bonuses and salary increases and, as you said, buybacks and dividend bonuses.