A new buzz that is sweeping the nation
Whether or not you voted for Trump, there seems to be a new buzz permeating the land regarding a new optimism for the future of business in the world. I can't put my finger on it yet, but the worldwide stock markets seem to be sending us a signal that businesses are beginning to feel more optimistic than they have in many years. President Obama never hide his disdain for large businesses and used them as a scapegoat for many of the world's problems and his lack of any tangible positive accomplishments. President Bush never seemed to connect with the people that wanted him to succeed.
Now we get a person who seems to be the ultimate deal maker on the planet, who wants to turn his skill set from business into government. I am sure he will have many roadblocks thrown in his way as he tries to apply business methods and tactics to dealing with the "governing class". But this time, our new President has the "people" on his side. This President also is the first to "call out" those he thinks are harming him and America. The way he calls them out is also a first by using technology (Twitter, etc.) to go directly to the American people and avoid any taint or re-packaging of his message by the old media.
Trump has already negotiated for and obtained, new and retained jobs for American workers. Trump's fundamental difference from the others in the past seems to be the fact that he wants America to win first, and then other countries. For almost the last thirty years we have been told by out politicians that we now live in a global society and that we are no longer the "big dog" leading the pack. Trump doesn't see it that way and wants the people of America to regain our place in the world as the nation all others look up to.
What has all this got to do with business? Like it or not we are a "trickle down" economy whereby when the biggest companies do well, they rely on the smaller companies to feed them products and services to keep that momentum going. This creates new opportunities where none existed, or revives industries that had gone dormant years ago. In a choice for a worldwide job to either be here in the U.S. or somewhere else in the world, Trump picks the U.S. first. By using certain incentives and sticks Trump can make it very good for business to come to America or stay in America. Those businesses who decide to go against this manner of thinking do so at their own risk.
Whereas we do not know what the future may bring, we can be certain that we now have a President who seems to want his constituents to have the jobs first and to use their new found wealth to revive economies all over the world.
What to expect from a Trump tax reform
The U.S. tax law was originally (and briefly) designed to raise tax receipts from a small, yet wealthy portion of the U.S. population. However, as with all good things, the Federal government turned the tax code into not only a tax receipts source, but as a way to shape and force public policy and public behavior. The U.S. tax code has grown from a few pages of tax laws into something known as Title 26 of the U.S. Code. This Title 26 was originally encompassed into something called the Internal Revenue Code (IRC). The IRC, over approximately the last 100 years, has mushroomed into a giant document with several thousand pages. It covers all aspects of our lives and tries to control or tax or both much of our daily lives. From taxes on what we drink (i.e. excise taxes on alcohol) to taxes on what we earn (i.e. corporate and individual income tax rates) This document and its related and equally complex accompanying regulations, Revenue Rulings, Revenue Procedure and a variety of Court cases has negatively affect our lives for so long a period, that no one can remember a time when anyone did some major action without first consulting their attorney or accountant to find out what tax laws they would encounter.
Politicians form the beginning, have been loath to change any tax law once in place, because by eliminating a law it is very hard to get it put back into law at some future point in time. Also, when a portion of any tax law is changed, there are winners and losers. The losers who have the most to lose usually have enough money to hire the right people to prevent the Congress from changing a law that negatively affects the original potential loser. Changing the tax law has long become the common example of the rule of unintended consequenses. For example, to eliminate a deduction such as home mortgage interest, it has been said that by doing so would put the entire home real estate market into a tailspin worse than the one we saw in 2008. The logic is that people will pay a price for a home greater than they can actually afford, if they can get a tax deduction for the interest piad, thus saving them tax dollars to be paid. With no deduction available, home prices would collapse by virtue of it being no longer "tax smart" to own a home.
During this recent Presidential campaign, I took the time to review the tax plan as set forth by the Trump campaign. In it I found the general outline of numerous tax policies that a business person would write. By that I mean, instead of some legalease or gobledegoop, I saw a few things which were straightforward and easy to understand.
The first would affect individual taxpayers by turning the laborious process of calculating one's tax based either on some schedule or table, into calculating one's tax by the use of one of three straightforward tax rates. Simplicity and fairness. The next thing I noted was the elimination of certain deductions from the itemized deduction section of the tax code. Essentially, the only two items which would be tax deductible as itemized deductions and those would be charitable contributions and home mortgage interest.
The last of my observations, and probably the one with the potential for the greatest impact on all of our lives, would be a special 15% tax on earnings brought back into the U.S. by companies who have earned those profits overseas. Generally speaking, if a large company were to repatriate those earnings under present tax law, those profits would be taxed at the highest U.S. tax rate of 35%. Considering that there are trillions of dollars waiting to come back to the U.S., a one-time, short-term tax such as this one would save U.S. companies hugh amounts of cash that would be mandated for investment here in the U.S. should a company decide to bring this money back to the U.S.
As the new President-elect hasn't even been sworn into office yet, we will have to wait and see what the final tax law changes are going to be, but if campaign promises are to mean anything, we can expect that a new tax law will be up on Capital hill in the late spring of 2017.
As you can see this is my first blog post on this newly updated website. I will use this area to write about current matters in the news which pertain to taxes, business and life that affect all of us on some level. I hope you will enjoy these posts as much as I will enjoy writing them!