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Tax Law Compromise - The Good, The Bad, and The Ugly

You probably know that the House and Senate reconciled the 2 tax packages, and according to the media, it has all but passed. For the record, President Trump should take a bow, but not until he has signed the bill into law. But for an Act of God, a lie from a politician (a REAL possibility), or an unseen provision, the law appears to be on its way to implementation for 2018.

We will attempt to explain and comment on a few salient features, using my favorite Clint Eastwood technique, the “Good, Bad and Ugly” analysis:

  • GOOD - The business tax rate will drop from 35% to 21%
  • BAD – Trump’s original proposal was for a 15% top rate for all companies, large and small
  • UGLY – Every “extra” percentage point makes us globally less competitive

  • GOOD – The business tax rate cuts do not have an expiration date
  • BAD – Individual rate cuts expire after 8 years in order to comply with the “Byrd Rule
  • UGLY – The Byrd Rule itself, which is disruptive to good ideas and policies

  • GOOD – The Standard Deduction for individuals is nearly doubled to $24,000 (married filing jointly)
  • BAD – Personal Exemptions (currently $4,050 per person) are no longer available, partially-to-completely offsetting the increase in Standard Deduction
  • UGLY – families with more than 2 children will actually be penalized by the loss of Personal Exemptions, and the credit is phased out for higher income levels

  • GOOD – Several rates are slightly lower, and some brackets go wider (apply to higher taxable income levels)
  • BAD – Some rates stay the same, and taxable income will be higher due to limited deductions, causing (for some) a tax increase
  • UGLY – The most common tax brackets, which affect the bulk of taxpayers, get virtually no relief (or worse)

  • GOOD – State and Local Tax (SALT) deductions were not eliminated
  • BAD – They are limited to $10,000 annually
  • UGLY – It is now an easy step for Congress to completely eliminate SALT deductions

  • GOOD – Mortgage interest deduction is retained
  • BAD – The limit is reduced from current loan originations up to $1,000,000 down to originations (new mortgages) maxed out at $750,000
  • UGLY – HELOC (Home Equity Line of Credit) interest is no longer deductible (currently up to $100,000)

  • GOOD – Estate tax exemptions are doubled
  • BAD – Estate taxes still apply to many people and small businesses
  • UGLY – Death Taxes in general should have been forever banned, but weren’t

  • GOOD – Eliminates the mandate to buy health insurance
  • BAD – Other provisions of ObamaCare are continued
  • UGLY – ObamaCare continues to distort the market, and politicians who pledged to completely repeal it lied

There is much more to be discovered and analyzed, but the ink is barely dry on the Compromise. We will report further as information is made public. Fundamentally, the corporate tax rate cuts should be good for the market, and consequently for all investors. Listen to the Van Wie Financial Hour every Saturday morning at 10:00 for up-to-the-minute analysis.

Van Wie Financial is fee-only. For a reason