In the final week and a half of the election race it has become clear that there are only two real choices—Hillary Clinton or Donald Trump. In the previous weeks we’ve been very up front with you about the damage Hillary Clinton’s liberal policies can have on the U.S. economy.
But what about Donald Trump’s policies? What will they do for the U.S. economy? Is it possible to have more money in your pocket if Trump wins? Today we examine that possibility.
Major Changes
The Trump tax plan comes with a number of significant changes. Largest among them is the reform to income tax. The plan simplifies the tax brackets, reducing them to three, and almost every level of income will see an overall reduction to income tax.
The plan also removes a large number of exemptions from the system. This keeps net IRS revenue from dipping too quickly in the early years of the plan, minimizes tax dodging and makes it easier in general for all Americans to understand and anticipate their taxes.
Ultimately, this particular set of changes stands to free a large chunk of income across the board, enabling additional investment to every level of income.
The next big change to note comes in the form of corporate and investing taxes. Corporate taxes are treated with the same philosophy as incomes: lower the automatic taxation and compensate by eliminating loopholes. This will also lower tax revenue in the short term, but there are potential long-term benefits that I’ll get into in a minute.
Conversely, the Trump plan suggests that investments should have an overall increase in taxation. While the raw percentages won’t go up, carryover interest rates will be treated like income. This will cause some shifting in some of the more popular investment strategies, but it is still likely to increase investing across the board.
The final major change comes in the form of estate taxes. Trump wants to slice a huge percentage off of inheritance taxes in this regard, making it easier for each generation to leave more to the next.
This comes with a bit of controversy in regards to the wealthiest Americans, but for the bulk of them, it makes it easier to leave houses and property to heirs without entangling them in crippling debt. With so much changing, most investment strategies will need some rethinking.
Managing Money
The most important takeaway is that you will likely have more money available for investment, and tax cuts this broad are likely to jumpstart the stagnant economy, so investing is the smart move. That said, tax changes will have a big impact on how you can invest efficiently.
You just read about how carryover interest is going to be treated like income. This means hedge funds and private equity investing are going to lose some of their shimmer.
Private equity may not apply to you, but managed hedge funds are tied to many retirement plans and general investing. Your best bet to maximize the money going into such accounts is to redistribute them where you can. Profit sharing is going to be untouched, so one of the key strategic shifts is to move money into booming business.
Corporate taxes drop considerably in this structure. That means American companies will be expanding, and the potential for profit sharing goes up considerably. Your safest, long term investments will be in well-established, U.S. based corporations. Bigger is better in this case.
Now, just because the big companies will be safe doesn’t mean that all of your money should go that way. Tax breaks will also bolster small and medium sized businesses, which is a perfect avenue for that extra cash you’ll be holding.
In this place, you can be as aggressive or conservative as you like, because business across the board is likely to thrive. Invest in companies that excite you, and turn a profitable portfolio into a way to also contribute meaningfully. You can really have the best of both worlds here.
The Big Picture
Trump proposes a lot of major changes to tax structure. Trying to get that through a bipartisan Congress will almost certainly come with revisions. The tax breaks will probably be less than what has been proposed so far, but the nature of the changes will be the same.
This is an economic stimulus, and it is much more sustainable and less egocentric than what was put forth by Obama during his two terms. Instead of having the government loan money back to the private sector, it will collect less in the first place, at least as a percentage. The entire goal is to regain tax revenue by raising the GDP, instead of sacrificing the GDP to get short-term tax gains.
It is a sustainable approach with a much higher ceiling than anything seen in the last eight years, and Congress is likely to play ball more than not, as they have as much to gain from these plans as anyone else.
Regards,
Ethan Warrick
Editor
Wealth Authority
