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Old 11-11-2016, 09:14 PM   #1
leistb
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Default What Donald Trump's Proposed Tax Cut Means For You

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Now that Trump is president, both individual and corporate tax-payers are taking a second look at Trump's proposed tax regime to see how it will impact their bottom line.

Here is a quick primer.

Trump has proposed personal and business tax reform that would reduce tax revenues by an estimated $4.4 trillion over ten years, or roughly 1.9% of GDP over that period. Alternatively, this also means that GDP will grow by roughly the same amount, all else equal, with incremental debt use to fund the shortfall. Roughly half of this cost is estimated to come from his proposed corporate tax reform plan, which would reduce the corporate income tax rate to 15% and would impose a one-time 10% tax on all foreign earnings not yet taxed by the US.

Companies would be free to repatriate earnings without additional tax once this tax has been paid. Like the House Republican proposal, this would involve a transition to a new corporate tax system for taxing foreign earnings. The two plans are similar in several other respects as well, including a top individual marginal tax rate of 33%. However, the House Republican plan is estimated to cost around half as much over the next ten years as Mr. Trump’s plan, at least in part because it proposes to go further in limiting or eliminating existing individual and corporate tax preferences.

This is summarized in the chart below. The good news is that virtually all entities and income tax brackets will pay less taxes compared to Obama's 2017 Budget (assuming Trump does not change his mind on this framework). The bad news, is that even more debt will be used to replace it, and should foreign buyers balk at US obligations it will require more deficit monetization courtesy of the Fed and another QE episode.




Which brings us to the second point: will Trump's tax plan pass? According to Goldman Sachs, the tax legislation has a good chance of passing in 2017, but it is not expected to reduce revenues by as much as Trump has proposed. There are three potential obstacles to its passage:

  • First, the cost is likely to be prohibitive for some members of Congress. While the majority party is able to pass tax legislation with only a simple majority in the Senate using the budget reconciliation process described above, it would require near-unanimity among the 52 Republicans in the Senate next year to do so. The prevailing expectation is that some Republican lawmakers would balk at the deficit impact of his proposal.
  • Second, while the House Republican proposal would increase the deficit less, it has also generally been proposed in the context of the broader Republican budget proposal, which would also reduce spending in several areas. Mr. Trump has not proposed a significant net spending reduction.
  • Third, tax reform is complicated, and even under a unified Republican government, it may be too complex to resolve in a matter of months.
Ultimately, the outlook for a tax cut depends on how willing marginal Republican lawmakers are to increase the deficit, and/or how willing they are to find offsetting savings elsewhere. Overall, there is a good chance that some type of tax legislation passes next year, but the obstacles to comprehensive tax reform go beyond partisan disputes, so one should expect tax legislation that is adopted in 2017 to be narrower in scope than the campaign proposal, and significantly smaller in its revenue effect; in other words much of this week's market rally - driven by hopes of tax-cut boosted economic growth and consumer spending - will be for nothing.
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Old 11-11-2016, 09:30 PM   #2
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Please. He's already backing down on getting rid of obamacare, on day 2. You think his "plans" for taxes have more weight than a daydream about naked fairies?
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Old 11-11-2016, 09:52 PM   #3
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I think it is a universal opinion that Obamacare needs to be replaced, and I don't think Trump is backing down on that... I don't know that he can do that the first day he takes office, but it will happen.

What is being promoted as Trump "backing down" in the MSM is his comment that he wants to keep the prohibition of discrimination based on preexisting conditions, and he wants parents to be able to keep their children on their policy until they turn 26.
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Old 11-11-2016, 09:58 PM   #4
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I call that an amendment of his position rather than backing down. Nothing says those provisions can't be included in whatever replacement system a Trump government puts together.
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Old 11-11-2016, 10:28 PM   #5
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Please. He's already backing down on getting rid of obamacare, on day 2. You think his "plans" for taxes have more weight than a daydream about naked fairies?
It's tough when you only read the headlines.
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Old 11-12-2016, 12:19 AM   #6
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Back to the OP on taxes.

I would be very happy with the standard deduction increased to $30k. I wonder how "exemptions" would be treated?
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Old 11-12-2016, 12:37 AM   #7
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I think that any tax cut must be given to those people who will spend it and not save it.

I have always been against Unfair Trade or Free Trade without regulating currency manipulation.

What I have found to be most astounding was when Chuck Schumer claimed that the TPP was dead.
The protesters presently on the streets in some U.S. cities will be quite happy about this policy turn around.

European leaders must be just seething with anger. Many political parties which supported TPP took huge political hits and many police and security folks were wounded while pushing back against protesters.

In fact, the E.U. passed the laws required to enforce the TPP just last week.

Europe will never trust America with deals of this sort again. The Obama pivot to the East is stuck in the South China Sea. America will need to pivot back to the Middle East very quickly because China is going to feast on East Asia now.

Europe will now walk away from Russia sanctions. Japan, Malaysia, Vietnam, Phillipines, Australia (to name only a few) are going to walk away from America trade as well.


This policy change will be welcomed in Europe:

Foreign policy adviser Walid Phares says that Trump might not move too quickly to move the US Embassy from Tel Aviv to Jerusalem and rip up the Iran nuclear agreement.

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Old 11-12-2016, 08:24 AM   #8
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I think that any tax cut must be given to those people who will spend it and not save it.

Calm
We've had a decade or more of monetary policy designed to punish savers. We have people being forced OUT OF and delaying going into retirement because of it. Why do you wish to prolong their sentence?
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Old 11-12-2016, 10:04 AM   #9
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Not figured in the expense saving of dumping a lot of government expense like funding solar farms, dumping a large portion of federal employees, etc.
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Old 11-12-2016, 10:13 AM   #10
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We've had a decade or more of monetary policy designed to punish savers.
I thought that the reasons for tax breaks this time around was to stimulate the economy.

Saving it does not stimulate.

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Old 11-12-2016, 12:11 PM   #11
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Originally Posted by Calm
Saving it does not stimulate.
Saving = capital accumulation.

Capital is what makes that thing called capitalism work. Capital is required for investment, investment leads to prosperity. Not complicated, but modern (i.e., Keynesian) economists seem not to understand it.
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Old 11-12-2016, 12:32 PM   #12
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'Saving it' encompasses a number of modalities. My savings in bank accounts is loaned out to people wanting mortgages, car loans or small business loans. Invested money supports existing companies.

Seeing too many people now at or approaching retirement age who spend every last cent they earned & are dismayed to find they don't have nearly enough to retire on... & I'm not talking a comfortable retirement but not enough to even pay basic bills.
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Old 11-12-2016, 02:29 PM   #13
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Seeing too many people now at or approaching retirement age who spend every last cent they earned & are dismayed to find they don't have nearly enough to retire on... & I'm not talking a comfortable retirement but not enough to even pay basic bills.
I turned 65 3 years ago.

I am single.

My CPP is $458.45
My Guaranteed Income or whatever is $1,145.62

I have no complaints at all. It is not party time. But I don't think that the Canadian Government promised me a Rose Garden. They only promised me that I would not be eating dog food during my retirement years.

I'm quite content that they kept their end of the bargain.

But, if they ever-ever cut my pension, I would burn them out.

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Old 11-12-2016, 02:33 PM   #14
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There's a reason they call them "entrenched entitlements".
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Old 11-12-2016, 02:33 PM   #15
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The last figure is OAS & GIS. There ARE some singles trying to survive on just that - no CPP to speak of.
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Old 11-12-2016, 02:38 PM   #16
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Saving means freedom. It doesn't mean the money won't be spent. Rather, it allows us to spend it as and when we see fit. That could mean spending it eventually, on big ticket items without having to resort to borrowing at exorbitant interest rates. Banks don't like that and neither does the gov't. They'd prefer that we behave like most people and consume frequently, even excessively, and do it using credit and not cash.

Saving money doesn't preclude spending it. It simply gives a person options on how and when to spend it. You can save and invest for the long-term for retirement or college expenses, or to have a nest egg in case something goes wrong, or save for a specific planned expense, or simply to have liquidity - cash on hand to take advantage of unanticipated possibilities. For us, saving meant having the cash to buy the unimproved 5 acre parcel adjacent to us when it unexpectedly went on the market. We know the owner casually and happened to run into him at the local post office. He mentioned he was on his way to put up a FSBO sign. We stood in the lobby of the post office, discussed price, and had a handshake deal in less than 15 minutes. The owner was selling because he needed cash quickly and we had it, which let us knock the price down. We met the next day at the lawyer's office, paid with a cashier's check, signed the contract and deed transfer and we all left happy.

Saving also allowed us to pay cash to have some land cleared, a 3rd driveway laid, and a 3 car garage with attached carport built. A couple of years ago, we checked into getting a construction loan from our bank. In spite of us planning to put 50% down, and having an excellent credit rating, the best the loan officer could do was a 10 year loan at 18%. To hell with that. So we simply cut the bank out of the equation and saved our money in our credit union account. When we had enough plus some extra, we gave the go ahead to the builder, and paid him in cash as each sub-contractor finished their part of the job. The poor guy didn't hardly know how to handle it; he was used to having to wait for a client to get their bank to release money from a construction loan. He told us that the next time we had a construction job, he'd give us a 10% reduction and accept our personal checks, simply because we paid him personally and bypassed the hassles associated with a bank loan.

So thanks to saving money, we've doubled the amount of land we own, and significantly increased it's value. We spent some cash, but did it in a way that benefited only us and the local economy, while bypassing the bank and the gov't. Win-win. And even while doing that, we continued saving. We've stepped up our retirement account contributions, started a 529 account for GS's future education, and once again we have a nice, increasing chunk of change in the credit union for our next project. Later today, I'll be making the last payment on DH's new truck, which we got at a 0% loan. Doing that will make us debt-free, aside from the mortgage, which is a typical 30 year ARM. We're about 10 years into it and saving has allowed us to make double or triple payments every month. By my calculation, we'll have it paid off in less than 4-5 years.

Saving means freedom.
Of course, neither the banks nor the gov't likes individuals to be free, so we pay for the privilege of saving (accumulating our own hard-earned wealth) by being taxed even on the pitiful interest which we earn on our savings. But we don't, and won't, allow that to deter us from saving our money, and being free to decide if and when to spend it in ways that are advantageous to us and not necessarily to the banks or the gov't.

In a world increasingly run by financial behemoth's who have entire governments in their pockets, we're probably considered to be freaks. But we're FREE freaks, and that's what matters.
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Old 11-12-2016, 02:48 PM   #17
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The last figure is OAS & GIS. There ARE some singles trying to survive on just that - no CPP to speak of.
I "Jointly" bought a house 2 years ago with my twin brother.

After everything is shared ..... mortgage, insurance, cable, phone, gas, hydro and a 300 dollar per month food allocation, (I only eat once per day) it costs me (my share) about 12 hundred per month to live.

I don't owe a dime anywhere except a mortgage.

If things really got desperate, I guess I could go back and do web design and stuff again. As it is now, I repair computers for free to anyone who is on a fixed income, just as a hobby of sorts.

The best thing about doing web design and computer work is that you never need to leave home. I can do it all remotely. I don't even need clean clothes or need to ever comb my hair. That too is the only reason I don't have a web cam hooked up to my computer. I don't want to have to comb my hair before I open my e-mail.

My nephew is earning 90 bucks per hour installing VM Ware for the LA X airport right now and he is doing it all remotely from home. He is so happy that he does not have to smell armpits on the street car every day.

As another example, the very last web design contract I had, left me with 115 thousand clear in 9 months and I never left home and nor did I meet the government contract person responsible. That is what paid for my house.

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Old 11-12-2016, 03:38 PM   #18
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As long as costs & spending stay at or below income, it works. The problem I'm seeing with many is they never ran the calculations on what income they may have coming in & they're entering retirement with a frightening debt load. They've assumed post retirement income will be close to pre-retirement... must have done a lot of sacrificing to the Money Fairy because they haven't saved nearly enough.

Many are counting on the equity from a house sale forgetting that even if they sell at a nice profit, replacement housing costs have also gone up. And... the aspirational house many built a few decades ago is of no interest to home buying millennials. The kids don't want 3,000sq.ft. center hall plan, 4 bedroom homes with a pool on 1/4 - 1 acre lots out in the exburbs & I know several such that have been languishing on the market for over a year.

I was reading last night, (of course I can't find it again now but will), that Canadians are carrying average debt loads - not counting mortgages of around $21,000. A big chunk of that is probably car loans - pretty much squares with the amount & I'd like to hope most entire retirement with as little debt as possible.

But back to the tax cuts - how much cash in hand bracket cuts & higher exemptions will add up to is going to depend heavily on personal circumstances. I don't think too many Americans have forgotten the shock of the financial crisis & many were badly burned. Until they feel more secure, I'd like to think most will, before anything else, pay off debt, then squirrel some away for the next rainy day.
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Old 11-12-2016, 05:59 PM   #19
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Quote:
Originally Posted by Calm View Post
I thought that the reasons for tax breaks this time around was to stimulate the economy.

Saving it does not stimulate.

Calm
Quote:
Originally Posted by CanadaSue View Post
'Saving it' encompasses a number of modalities. My savings in bank accounts is loaned out to people wanting mortgages, car loans or small business loans. Invested money supports existing companies.

Seeing too many people now at or approaching retirement age who spend every last cent they earned & are dismayed to find they don't have nearly enough to retire on... & I'm not talking a comfortable retirement but not enough to even pay basic bills.
Came here to say what Sue said.

Specifically, saved money gets spent but the aggregation decreases the slosh so it can be loaned out.

Money doesn't sit in a bank in a savings account, CDs, etc. it gets loaned out to people to buy cars, buy homes, and for businesses to buy inventory or make capital improvements.

Saved money is more valuable that money spent on eating out, movies, or what ever people spend money on.

And that saved money is a cushion for the saver to even out any economic challenges they may have.
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Old 11-12-2016, 06:39 PM   #20
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Not Holding my breath for tax cuts, or any other vague trump promises. I doubt he will build The Wall. I predict, but hope I'm wrong, that trump is totally unable to conduct the affairs of state, that he won't make it 4 years. I'll be shocked if he's not impeached/forced to quit. I'm just happy that awful shrew hitlery lost. But oh boy are we in for it now as a country
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Old 11-12-2016, 08:29 PM   #21
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Specifically, saved money gets spent but the aggregation decreases the slosh so it can be loaned out.
You are totally wrong.

Money is not lent to people because depositors left some money at the bank.

The "Loan" of money is how money is created.

A bank with an empty vault will lend you money. It is encouraged to do so. That is how the system works. That is how the system is set up. That is the reason we have banks in the first place.

It is the banks who "create" money out of thin air. They don't need to have any deposits on hand. The banks could care less how much they have in their vaults, except when it comes for charging you fees each time you access your funds. That is all.

There is a book out there named: Web of Debt by Ellen Hodgson Brown.
Our money system is not what we have been led to believe. The creation of money has been "privatized," or taken over by a private money cartel. Except for coins, all of our money is now created as loans advanced by private banking institutions -- including the private Federal Reserve. Banks create the principal but not the interest to service their loans. To find the interest, new loans must continually be taken out, expanding the money supply, inflating prices -- and robbing you of the value of your money.
http://www.webofdebt.com
https://en.wikipedia.org/wiki/Ellen_Brown

It explains it all. I could make it available for you to download if you were interested.

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Old 11-12-2016, 08:35 PM   #22
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They can only leverage up based on what they have deposited... legally mandated.
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Old 11-12-2016, 08:53 PM   #23
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They can only leverage up based on what they have deposited... legally mandated.
Yeh! That is right.

Except, it means nothing because they can just get money out of thin air from the Federal Reserve and call it a deposit.

-- The US Mint does not create our money. It creates about 3% of it in the form of dollar bills and coins. The rest is generated through computerized bookkeeping entries by the private banks.

-- Banks do not make loans only from money they have on deposit… Through what is called “fractional reserve banking,” They loan well over ten times the amount they have on deposit. This is how our money is created. It is created out of thin air.

-- All money is debt.

An Illustration Of The Way The Private Banking System Makes Huge Profits Out Of Thin Air:

Let’s use $10,000 as an example to understand the process.

The Federal Reserve Bank buys $10,000 of US debts called Treasury Bills from the US. The Fed creates it out of thin air.

The Fed then loans this $10,000 to a bank and requires the bank to pay the current federal funds rate as interest. This $10,000 becomes a “liability” of the bank, but the bank immediately loans this money to a borrower, but in double entry bookkeeping, this $10,000 loan becomes an “asset” of the bank from which the bank can make further loans.

Here is where the second bit of magic occurs called “fractional reserve banking.” The reserve is not gold or any other hard asset. The “reserve” is debt.

The bank is permitted by the Fed to loan 90% (or more) of that $10,000 loan to make a second loan of $9,000 which also becomes an “asset” of the bank from which the bank can make a third loan of 90% or $8100 and continuing to a maximum of 10 times the first $10,000 or $100,000.

The bank “earns” interest on this magic $100,000 created out of thin air which is the source of the bank’s immense Ponzi-like profit. A bank can earn more profit by borrowing more from the Fed and loaning it. This explains why the banks are so eager to give us credit cards.

By federal law, this money created out of thin air is “legal tender” and must be accepted in the payment of debts and taxes. The backup security is not gold, but “the full faith and credit” of the United States.
http://www.thenewliberator.blogspot.com

And, you know what the really Scarios thing is? ....

The FDIC insures every bank depost.

"....FDIC insurance .... It covers deposits up to $250,000, but the FDIC fund had only $67.6 billion in it as of June 30, 2015, insuring about $6.35 trillion in deposits."

"The FDIC has a credit line with the Treasury, but even that only goes to $500 billion; and who would pay that massive loan back? The FDIC fund, too, must stand in line behind the bottomless black hole of derivatives liabilities."

And it isn't as though you get your money (if any) the next morning. The FDIC has 20 years to give your money back to you after a bank failure.

Calm

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Old 11-12-2016, 09:13 PM   #24
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So, have I changed any minds as to whether or not tax breaks should only be given to those people who will spend it?

The economy is built on "Demand" and if people spend money, there is demand.

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Old 11-12-2016, 09:56 PM   #25
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Nope. In any case - how would they know someone will spend it? Trump has promised to reduce regulations, not add to them.
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