Final compromised tax brackets

[The White Coat Investor]

That didn't take long. Thread closed.

[Antares]

StarTrekDoc wrote:

Re3iRtH wrote:

 

How can you not love Trump and the current folks in office?  Excited!

Click to expand…

If he decides to play chess with Joshua, it really doesn’t matter at all.

Click to expand...

I’m sure this was sarcasm, no? A serious “How can you not love Trump?” would violate the apolitical mandate we’ve been asked to abide by on the site, and engender passionate lists of reasons from those here who are not impressed.

[StarTrekDoc]

Re3iRtH wrote:

 

How can you not love Trump and the current folks in office?  Excited!

Click to expand...

If he decides to play chess with Joshua, it really doesn't matter at all.

[TheGipper]

Rotish wrote:

I can’t complain about this bill. All the horrible parts of the house and senate versions didn’t make it.

I am interested to see what happens in 2026. The party that doesn’t extend the individual brackets is going to be crucified. I predict they reverse the corporate taxes back to 35 and make the individual tax cuts permanent with the exception of the top rate. Or just dip further into the deficit “shrugs”

Click to expand...

We have a playbook on this one on the individual side (aka Bush tax cuts).  Top rate will be allowed to go back up to 39.6%.  They will keep lower and middle rates and increased standard deduction as is and keep the refundable child tax credit to those who pay no federal tax.  The code will continue its slow march to a more progressive code where fewer and fewer Americans pay all the tax and more Americans pay nothing.

The corporate side will be more interesting.  They might not have the stones to let the corporate tax go back up for fear of a recession or stock market collapse.  My bet is that within a few months from now many other countries will further lower their corporate rates to be more attractive again than the US.

 

[Rotish]

I can’t complain about this bill. All the horrible parts of the house and senate versions didn’t make it.

I am interested to see what happens in 2026. The party that doesn’t extend the individual brackets is going to be crucified. I predict they reverse the corporate taxes back to 35 and make the individual tax cuts permanent with the exception of the top rate. Or just dip further into the deficit “shrugs”

[Re3iRtH]

I would have payed $3,350 less in taxes for 2016 with this new plan!! This is even better than those first proposed tax bills a month or so ago. This seems like even more incentive to stay in military medicine. Since less of your paycheck is already taxed, but earning $500-$1M in the civilian world comes at a huge cost in taxes.

+1 for military medicine

+2 for investing in real estate. #1 corporate tax rate fixed at 21% (I'll have to get more LLCs though). #2 Residential and commercial depreciation has changed to 25 years for both (an immediate tax savings). The lower real estate tax rate is almost moot, since its common to legally pay ~$0 tax on rental real estate, even though there is a 10-15% return on cash per property.

How can you not love Trump and the current folks in office? :P Excited!

[StarTrekDoc]

If you're using PE ratios - don't be looking at AMZN   and they are eating everyone's lunch.

If we wanted simplification as the measuring stick, should have brought back Perot and Double downed on AMT.   We did some ****************************************** option with the doubling of the standard deduction to make it more palatable over itemization and creating more 1040-EZ files -- AFTER one runs the number simulations in multiple scenarios for 1040A and AMT.

This reform keeps HR Block and accountants EVEN MORE.   Now my scenarios include -- when to get LLC involved and where (which state) to house them.

Reform?  Yes, for many

Simplification -- not even close.

 

[ENT Doc]

Why are stocks going to necessarily be bid up to super high P/E ratios like they are now? All else equal if earnings improve as expected then P/E ratios will still look somewhat expensive. They looked expensive even prior to the tax bill or Trump's election. The reason the market has bounced around on the news, as I'm sure you know, is because of expectations. The collective expected likelihood of passage multiplied by the price given the new corporate rates yields the new price. The latter doesn't change but the former does with the news.

[Zaphod]

ENT Doc wrote:

Zaphod wrote:

ENT Doc wrote:

Antares wrote:

The effect on the economy and society of lowering the corporate tax rate is strictly an empirical question. You would have to run that experiment numerous times and observe the result. All the marshaling of reasons and arguments provides only an abstract sense of belief, absent real world data. It’s quite possible that corporations pocket the money, and the main result is that they have more profit, their value increases and the stock market goes up. We just don’t know. And this is happening when we’re basically at full employment. If it were really true that this will help the economy, better to do it in a recession, where the economy is more in need a of a boost. I will remain skeptical until we actually see what happens.

Click to expand…

By any valuation standard you use reducing the tax rate from 35% to 21% will increase the value of the company.  Trouble is, this is a one-time thing so if you weren’t in the market this past year you just missed out.  As corporate earnings increase as a result valuations will come down from their “overbought” status now.

Click to expand…

But then be bid right back up to where the market thinks the new valuation makes it worth.

Click to expand…

Not following.  The market has bid up the prices now because of the expectation of tax cuts, in addition to good GDP and earnings data.  When the tax bill gets signed into law those expectations become fully realized (what has yet to be priced in then gets priced in).  Then the only thing driving prices are what is traditional, not one time events.  Those events may or may not lead to increased prices.  If corporate earnings falter, so do stocks.  Point is, the tax bill has exerted its effect already and isn’t going to keep affecting the market, aside what additional consumption from lowered taxes hasn’t been priced in already.

Click to expand...

I know we say theyve been priced in, but once that happens its the new anchor and becomes standard. Then, if realized earnings increase the market PE will drop and stocks will all the sudden appear 'cheap' to everyone now used to a higher PE and further they will be justified by the 'new normal' of higher profit margins and then they will get bid up back to the level they were. There is no real rhyme, reason, or logic to it, just human nature.

Just look at whats happened over the last couple weeks with the 10 or so iterations and possible blows to this tax bill. On each announcement of some agreement or passed vote, the market went up, on each possible thorn there was a smaller selloff eventually basing only to be bought and rally with the next breaking news of passage/agreement. Its crazy, we have seriously rallied on the same premise no less than 5 times without a material drop to baseline in between.

[ENT Doc]

Zaphod wrote:

ENT Doc wrote:

Antares wrote:

The effect on the economy and society of lowering the corporate tax rate is strictly an empirical question. You would have to run that experiment numerous times and observe the result. All the marshaling of reasons and arguments provides only an abstract sense of belief, absent real world data. It’s quite possible that corporations pocket the money, and the main result is that they have more profit, their value increases and the stock market goes up. We just don’t know. And this is happening when we’re basically at full employment. If it were really true that this will help the economy, better to do it in a recession, where the economy is more in need a of a boost. I will remain skeptical until we actually see what happens.

Click to expand…

By any valuation standard you use reducing the tax rate from 35% to 21% will increase the value of the company.  Trouble is, this is a one-time thing so if you weren’t in the market this past year you just missed out.  As corporate earnings increase as a result valuations will come down from their “overbought” status now.

Click to expand…

But then be bid right back up to where the market thinks the new valuation makes it worth.

Click to expand...

Not following.  The market has bid up the prices now because of the expectation of tax cuts, in addition to good GDP and earnings data.  When the tax bill gets signed into law those expectations become fully realized (what has yet to be priced in then gets priced in).  Then the only thing driving prices are what is traditional, not one time events.  Those events may or may not lead to increased prices.  If corporate earnings falter, so do stocks.  Point is, the tax bill has exerted its effect already and isn't going to keep affecting the market, aside what additional consumption from lowered taxes hasn't been priced in already.

[Zaphod]

ENT Doc wrote:

Antares wrote:

The effect on the economy and society of lowering the corporate tax rate is strictly an empirical question. You would have to run that experiment numerous times and observe the result. All the marshaling of reasons and arguments provides only an abstract sense of belief, absent real world data. It’s quite possible that corporations pocket the money, and the main result is that they have more profit, their value increases and the stock market goes up. We just don’t know. And this is happening when we’re basically at full employment. If it were really true that this will help the economy, better to do it in a recession, where the economy is more in need a of a boost. I will remain skeptical until we actually see what happens.

Click to expand…

By any valuation standard you use reducing the tax rate from 35% to 21% will increase the value of the company.  Trouble is, this is a one-time thing so if you weren’t in the market this past year you just missed out.  As corporate earnings increase as a result valuations will come down from their “overbought” status now.

Click to expand...

But then be bid right back up to where the market thinks the new valuation makes it worth.

[ENT Doc]

Antares wrote:

The effect on the economy and society of lowering the corporate tax rate is strictly an empirical question. You would have to run that experiment numerous times and observe the result. All the marshaling of reasons and arguments provides only an abstract sense of belief, absent real world data. It’s quite possible that corporations pocket the money, and the main result is that they have more profit, their value increases and the stock market goes up. We just don’t know. And this is happening when we’re basically at full employment. If it were really true that this will help the economy, better to do it in a recession, where the economy is more in need a of a boost. I will remain skeptical until we actually see what happens.

Click to expand...

By any valuation standard you use reducing the tax rate from 35% to 21% will increase the value of the company.  Trouble is, this is a one-time thing so if you weren't in the market this past year you just missed out.  As corporate earnings increase as a result valuations will come down from their "overbought" status now.

[Antares]

The effect on the economy and society of lowering the corporate tax rate is strictly an empirical question. You would have to run that experiment numerous times and observe the result. All the marshaling of reasons and arguments provides only an abstract sense of belief, absent real world data. It’s quite possible that corporations pocket the money, and the main result is that they have more profit, their value increases and the stock market goes up. We just don’t know. And this is happening when we’re basically at full employment. If it were really true that this will help the economy, better to do it in a recession, where the economy is more in need a of a boost. I will remain skeptical until we actually see what happens.

[Zaphod]

Just changing the corporate rate isnt really tax code reform though in the abstract and simplifying vein. Its just moving the goal posts around. I know they (everyone who ever talks about tax reform) always say 'simplify' but thats just never the case and is so complicated to even think about that will hardly ever happen. Thats a bottom up process of finding where some trouble started and fixing it and every other branch it has created over the decades. That just seems too much for congress, they will just slap stuff on top, which is more complicating most of the time.

From a cynical viewpoint, congress doesnt even write these bills lobbyists do. How can you expect these narrowly interested parties to care at all about the greater tax code. Theyre paid to be concerned about one thing only, their tiny little area to promote. That wont change the code either.

[The White Coat Investor]

ENT Doc wrote:

The White Coat Investor wrote:

Lithium wrote:

Good luck fitting this on a postcard.  Retention of seven brackets, marriage penalty, AMT, and most of the deductions the House bill axed.  Reducing deductions such as SALT and mortgage interest without indexing to inflation is worse than both eliminating them and leaving them unchanged.  I’m sure the stupid Pease limitation hasn’t gone away, nor has the Medicare capital gains surtax.  Our tax system still sucks, and this doesn’t make it any better.

Click to expand…

I agree. While I’m more than happy for what I’ll save in taxes, it isn’t much of a tax reform.

I wish tax discussions were less about the class warfare with one party making the system less progressive and the other making it more progressive and more about actually reforming the system.

Click to expand…

I disagree that this isn’t much of a reform.  Lowering the corporate rate to 21% is major reform.  As for simplicity and the notion of reforming the system, pretty much any change is going to result in a more or less progressive tax system.  What systemic reforms wouldn’t?

Click to expand...

Fair enough. It's a major reform of the corporate tax code- and not just the lower rate. It drops the AMT and gives a special rate to bring overseas money home. But it didn't do nearly as much as I had hoped on the individual side (and I'm not talking about making it more/less progressive. I'm talking about simplifying. The only really good simplification that came out of this was the higher standard deduction.)