This is helpful for two reasons. First it gives companies money to re-invest here in the United States. Now some might say that they won’t re invest but instead will just pay bonuses to the executives. However, this is a lot of dollars and there will be dollars they can use to free up debts, buy new buildings, machines, or hire new people and still pay bonuses so there will be more dollars to go around. Secondly, each plan asses a tax rate to this one time repatriation. If you use Trump’s plan that rate is 10%. This will bring much needed dollars into the Treasury. Although it is a one-time deal, companies, due to the lower overall rate will bring more dollars readily back each year than leaving them sitting out there.
The challenge is how these tax plans deal with lower income. Trump has the best plan where he is not taxing single filers making under 25,000 or joint filers making under 50,000. However, most have similar plans and again the number is not the point, but the fact that they are freeing them up to be able to live by reducing their burden. Although most plans reduce the top brackets, this reduction does not lower revenue to the treasury as some might state. The reason being is most people do not understand that although your top bracket is at 39.6% the people are not actually paying that rate, they are paying a mixture of all the brackets below them, so they are paying a much less marginal rate. Some of these tax plans basically make the payer pay at their specific rate, no averaging of rates. Others cap it out at the lower high bracket and average the rates but more dollars are taxed than before. In addition all plans so far have reduced or eliminated corporate and individual tax loopholes and deductions creating a higher burden for all but increasing income to the treasury.
The concerns of the different plans are their eliminations of some other taxes. For example the estate tax or death tax as others have called it. This is not a bad tax nor is it a good tax. Having a structure to it is helpful and it really only punishes those who do not plan, which in my mind is okay. Most of the rich, that people say abolishing the estate tax helps, already have so many trusts and other things to protect their money they are not affected by it, so having it and not having it we are not losing out on a lot of revenue, but it catches those who fail to plan for it. Capital Gains rates are one of those other taxes that can be lowered or raised and it will affect some but not others. Eliminating exemptions and loopholes is the better way to go.
To sum it up all the tax plans are great and bad. The key thing here is every plan uses a growth model in GDP. While their tax cuts can create that growth potentially, the plans are counting on growth the following year. In a large economy like the United States that might take up to four or five years or the first year on the plan so there would be a tremendous lag and a major addition to deficits for a while proving in the short term the plans are a failure. However, if they are left to go they can be a huge boom to the economy. The question is how big? Each plans uses different baseline growth assumptions, most start at an assumption of 4 to 5%. Jeb bush’s plan uses 4.3% as an assumption. Going from 1.2 to 4.3% in one year would be a feat especially with the global decline. Thus we need to be careful at how we look at things and identify what are the important assumptions and issues and help us figure out the right people that will drive what is needed.
Rodney Mogen, is the president of solveurpuzzles, a business focused company. Solve ur puzzles helps three groups: Small Businesses, Financial Advisors/Agents, and Local Government Entities. Rodney is also a small business advisor focused on developing financial strategies for small business owners and helping them develop their own strategy and ideas to grow, sell, develop the way they want. He is focused on creating proper financial strategies for Advisors and business owners to assist them in their day to day duties by solving their financial puzzles. Rodney is also the Director of Financial Strategy for The Evans Group. Check out more information at www.solvurpuzzles.com.