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Happy New Year

Pres. Donald Trump signed into law on December 22 the most significant tax overhaul since the Reagan administration involving $1.5 Trillion tax cuts for individuals and corporations.

It involves reduction in individual tax rates in five of seven categories with the highest rate reduced from 39% to 37%. Corporate rate is reduced from 35% to 21%.

The huge reduction in corporate tax rate was intended to make corporations in the U.S. more competitive with the rest of the world enticing them to set up shop in the U.S. instead of tax havens offshore. The 35% corporate tax rate was one of, if not, the highest rate in the world.

The law also clipped Obamacare by repealing the individual mandate to purchase insurance. This means that individuals who fail to purchase health insurance will no longer have to pay a penalty to the government. It also opened more valves to America’s energy potential by allowing limited oil drilling in ANWAR, an oil-rich ice-covered wilderness in Alaska.

The law passed with not a single Democratic vote in the House and the Senate, reminiscent of the passage of Obamacare when it was also snubbed by all Republicans.

Predictably, the Democrats have declared doom and gloom day-in and day-out before and after the legislation was signed by the President. The common refrain is that it is a corporate give-away and a tax cut for the rich.

It is obvious that the tax cuts are more generous for corporations. This tax overhaul was not just intended to put more money in people’s pockets but also to spur economic growth and create more high-paying jobs. The administration is eyeing more than $2 Trillion in corporate profits parked abroad by American companies to avoid high taxes in the U.S. The reduction in corporate tax rates should provide enough sweeteners for American companies to repatriate hoarded capital abroad and invest them in the U.S. instead.

House Minority Leader Nancy Pelosi warns that the Republicans’ tax offering will bring Armageddon. She says that the GOP is deceiving people by claiming that cutting taxes for corporate America is going to produce growth. Yet, it was the same Nancy Pelosi who in 2016 who said in a press release that “it is long past time for tax reform that would lower the corporate rate.”

Sen. Chuck Schumer, the Democratic Minority Leader in the Senate attached the tax bill on the Senate Floor saying that “the cut in the corporate rate would hardly help the everyday American worker.” Yet in 2016, he said in a committee hearing on cutting corporate taxes that “I’m game to do it because I think it’s really important for American competitiveness.”

Who else was for cutting corporate tax rate in 2016? Pres. Barack Obama. He said that cutting the rate to 28 percent was necessary for putting the United States in line with major competitor countries and encouraging greater investment here at home.

According to the Council of Economic Advisers, the tax cuts would increase household income between $4,000.00 to $9,000.00 a year. The Wall Street Journal estimates that at least 90% of all taxpayers and at least 80% of middle class taxpayers will benefit from the rate reduction.

Will the corporate tax cut bring the desired economic outcome? The initial boardroom reactions among giant corporations provide a sneak peek into the future.

As soon as the legislation hurdled both the House and the Senate, ATT announced that it will pay $1,000.00 bonuses to 200,00 employees and invest $1 Billion. Comcast followed suit with a $1,000.00 bonus to 100,00 frontline non-executive employees and invest $50 Billion in infrastructure. Fifth Third Bank will increase its minimum wage to $15 per hour and Wells Fargo will also increase its minimum wage rate and donate $400 million to non-profit charitable organizations. Boeing will spend $300 Million in pay raises and donations to charity.

According to the Boeing CEO Dennis Muilenburg, “the reforms enable us to better compete on the world state and gives a stronger foundation for the investment in innovation, facilities and skills that will support our long-term growth.”

Count your dollars next year. The money in your pocket will be the truth teller.

Happy New Year.





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