Details of the GOP Tax Proposal

On this week’s show, Karl discusses the busy week on Wall Street including Bitcoin blasting higher, a new Fed Chair, and a GOP Tax Proposal to digest.



Karl Eggerss:                      Hey, everybody. Welcome to the Eggerss Report, It’s Your Investing Playbook. My name is Karl Eggerss. I’m the CEO of Eggerss Capital Management and we are a registered investment advisory firm. We’re an independent fee-only firm. What we do every week is put together a podcast for you to listen to and essentially, we go through what’s moving the markets, some things to think about, we try to teach and really, just help you become a smarter and hopefully, a wealthier investor and even we touch on financial planning items.

Later in the show, we’re going to have Casey Keller, our resident Chartered Financial Analyst, to discuss the Republican’s tax proposal that we heard about this week and of course, we’ve heard iterations of it in weeks past. This new one, again, could change and more than likely might be modified but we’re going to go through some of the highlights, who’s going to benefit from this and who would not benefit from this particular tax proposal. We’ll do that in a little while.

Our telephone number, 210-526-0057.  Our website is and our Twitter handle, @karleggerss is mine. We also have @etfcharts if you’d like to see some charts. Eggerss Capital Management’s on Instagram or on Facebook. Lots of different ways to get our information. Every Monday morning, 7:20 AM Central Standard Time, you can hear my interview with Trey Ware on the Trey Ware Show live discussing, really, whatever he asks about the economy or the markets. Lots of different ways to get our information.

Our website,, you’ll see lots of things on there. You can go right to the blog, you can listen to old podcasts, you can get some information on investment management, money management. Lots of things on there for you. All right, well, number one, I was going to tell you too that we do have an article we posted during this week some time called “It’s Not Over Yet”. I would encourage you to read that. I think it’s an article that most people need to read and see.

Really, it discusses if you’re going to invest in individual stocks, that is a fork in the road, right? Some of you have never invested in mutual funds or ETFs before and so that’s a first step. A lot of you have invested in those things but maybe you haven’t taken the leap towards individual stocks. I’m the first to tell you that you don’t need to do that. I think there’s benefits to doing it but don’t feel forced to invest in individual stocks because it does come with some pros and some cons.

The article was titled “It’s Not Over Yet” and it was really discussing to get these crazy returns over the long-term that you hear about where people say I’ve tripled my money. To do that they’ve typically been through a lot of gut-wrenching drawdowns where the stock has fallen 10, 20, 30, 40, 50, 60, 70% before it went on to make these returns. Look at Amazon, look at Netflix, look at Facebook, look at Google, all of these companies that have done well, even Apple, have been through these dramatic drops.

The article is really giving you some tangible evidence of this, we show you some charts and just help you think about this when you’re investing in individual stocks. The reason that it’s called “It’s Not Over Yet” is that if you’re sitting there, holding the stock down 30, 40, 50%, could you have timed it better? Sure, we could all do that but if you’re in it for an investment and nothing has changed and in fact, you might see the fundamentals getting better but they’re going through some situations.

What happens is the stocks get in this negative feedback loop and keeps going down and down and there are forced sellers that push it further. That is an opportunity for you if you still like that company to add to it, lower your cost bases, get a better deal so that, when it does turn around which inevitably a lot of them do, then you can get some really good gains. It’s Not Over Yet means just because you’re down on it does not mean that trade is over. I would encourage you to go read that article.

Well, it was really a busy week in the markets, wasn’t it? I mean, we had all kinds of things going on. Number one, we have bitcoin just going bonkers, going over $7,000 and just this week, I mean the bitcoin investment trust, GBTC, was up somewhere in the order of 40% this week. One thing that happened this week is Chicago Mercantile Exchange announced they’re going to allow or going to create futures on bitcoin. You’re seeing the adoption.

More ways to get bitcoin, creating more of a liquidity market and the market took that as good news and up we went. Again, be careful how you do this if you’re invested in that at all which most of you are not. I am not involved in bitcoin at all but I do report on it because it’s something you should know about because I think, again, going to digital currencies is the wave of the future, whether it’s bitcoin or not, we don’t know.

It is the leader right now and so it’s getting a lot of pub. Of course, Monday we saw the stock market sell off pretty quickly. It wasn’t really on the Manafort situation, it was more about when the corporate tax that they’ve talked about potentially having the corporate tax cut be phased in. Remember, they’re trying to drop it from 35% down to 20% and there are some rumors that they wanted it phased in overtime and the market didn’t like that and President Trump came out and said, “No, no, no, no, we’re not phasing it in.”

It brushed that off and then, of course, we did get the tax proposal which, again, we will talk about in a little bit with Casey Keller. Other news this week, Jerome Powell, not a big surprise, was introduced as the next Fed chair. For those of you that don’t know, this is really, to me, it made sense. This is somebody that’s going to be similar to Janet Yellen in terms of, I think, how he thinks about this and gradual with the rate increases but it’s Trump’s pick.

Trump gets to put his name on it. Remember, Donald Trump likes interest rates low. He borrows money, right? He doesn’t want to rock the boat here with higher interest rates for lots of different reasons. Really, some of these things, the tax reform, the Jerome Powell being friendly to the markets, are those things priced into the markets? To a certain extent, I think they are. We saw that the Dow Jones get very stretched over the last few weeks.

Probably of the last 20 years, maybe the top 10 of overstretched markets we’ve seen. It doesn’t mean it has to go down but it certainly means that we could pause at the very least. I do think we’ll get a pause although here we are at the end of the year and as the end of the year approaches, people are shuffling things around. Some of the losing stocks, and this is an opportunity, the stocks that are down may continue to go down this month because they’re being sold for tax loss harvesting.

If somebody has a loss on a stock, they sell it, they can wait 30 days, buy it back and then recognize that loss as a capital loss to offset any gains. Mutual funds want to get rid of those for tax purposes, they also want to get rid of them because they don’t want them showing on the books at the end of the year that they owned these stocks. Some of these weak stocks will stay weak ’till the end of the year, that’s an opportunity. In fact, we often see that.

In January, you see of the biggest November-December losers become the biggest gainers in January and you see some of the stocks that were running up to the end of the year, people take profits on them in January when it’s a new tax year and you see this reversal happen. Watch for that in January but it may present some opportunities for some of those stocks right now in November and December. We could see a pullback but it may not happen until the new year. We don’t know. It seems like we’re embracing these beginnings of a blow off top that I’ve been mentioning.

I think the average Joe embrace the market more. Okay, maybe it’s not going to go, I mean I talk to people everyday, guys. Every day somebody calls me and says, “Yeah, you got me a little nervous so I’m sitting on the sidelines. I really need to do something with this money.” That attitude of the nervousness that was there in November, last November and here we are a whole year past the election, amazing, that nervousness is gone. People are saying, “What do I do with it?”

They’re putting it in the market and we’re getting this embracing. Now, at the same time, some of the professionals, some of this what they call smart money is going, “I don’t know about this,” and starting to get a little nervous so watch that. We’ve also seen some interesting stats like the Dow Jones is making new highs but not a lot of stocks are advancing with it. That’s something to watch. Overall, breadth is pretty good but the Dow Jones in particular has been led by a few specific companies so watch that.

Really, the Fed decision this week, the tax reform that we’re going to talk about, those are the big, big movers. Of course, we still have more terrorist events at the market, it seems to brush aside because it’s, unfortunately, too common. Some of the big movers this week, oil is doing very well. Oil, around $54, $55 a barrel and we haven’t seen that in a couple of years so because of that we’ve seen the exploration and production companies, the equipment service companies had a good week up at around 5% or so. Energy, in general.

Bonds actually did well. Interest rates are staying stubbornly low and so bonds are doing well. Biotech bounced back. Remember, we’ve been talking about biotech. It really had a tough couple of weeks here. It bounced back so we could see that setting up for another move higher. Semiconductors has continued to strengthen. They’ve been really unbelievable in this market so all those things are up about 1%. Some of the losers on the week, telecom. Telecom, big, big loser this week.

We saw some information that T-Mobile, Sprint, some of these companies may not merge. We also saw that the Time Warner deal, AT&T, heard some things about that not going through so AT&T fell. I think AT&T is at a pretty good place right now. In fact, we have it in our dividend plus portfolio but we saw the telecom really get hit. Volatility got the low end once again, some of the steel stocks. We also saw the housing stocks get hurt.

It wasn’t a lot but when we saw the proposal, the interest deduction capped. That was something that hurt the home building stocks so that was a mover this week. Overall, it’s a split market. I mean, you had a lot of things down this week, you have the airlines down, the banks down, some of the foreign countries down, you have the transports down, gold miners were down, even small caps were down. Then, you had all these things up as I mentioned before. Really, a bifurcated market.

Overall, again, what we’re going to focus on is we got the Fed decision behind us and now, what we need to be looking for is does this corporate tax reform and personal tax reform happen in 2017 into 2018 and what kind of effect can that have on the market. We got a jobs report. Some people have blown that off, it was worse than expected because of the hurricane, by saying, “Well, these numbers are spotty.” Let’s look at the trend overall.”

Trends are still good so market brushed that off but that was some of the big movers this week, some of the big news items this week. Now, what I wanted to do is shift gears because this is something that I also think can affect you is if this tax reform goes through as it’s stated, let’s go through some of the details on that regarding how that’s going to affect you and all the details surrounding it.

All right, Casey Keller is back with us as promised earlier. He is going to touch on some of the things in this new tax proposal. There is a lot of information here, a lot of changes and it’s going to affect a lot of people in a lot of different ways. As usual, it depends on your specific situation. It’s not a done deal, we’re not tax experts, we’re not tax advisors, so to speak, or CPAs but we want to touch on some of the highlights. As this happens or doesn’t happen, obviously, your situation, you need to probably consult with a tax person to really narrow down how this is going to affect you. We did want to touch on some of these. Casey Keller, chartered financial analyst, welcome back to the Eggerss Report.

Casey Keller:                      Glad to be back.

Karl Eggerss:                      All right, so there’s a lot of stuff in here and we, obviously, can’t get through all of it. What I did want to touch on though was let’s break this down into three pieces. I think the three pieces are number one, the goal of this and what, overall, this is going to do for the overall tax system in terms of is it getting more complex or simple for the average Joe?

Casey Keller:                      Definitely simpler.

Karl Eggerss:                      Simpler, okay. Let’s start with that and then, the other two areas I want to touch on is the personal side and then, the corporate side. An average couple at home, a couple of kids, why would it be simpler for them?

Casey Keller:                      Well, for starters there’s fewer tax brackets so we’re going from seven to four tax brackets where we used to have several different income levels and it changed the percentage on that. That’s simpler to begin with. The standard deduction is doubling, roughly doubling …

Karl Eggerss:                      For married it goes from $12,000 to $24,000 but, what’s the but here?

Casey Keller:                      There’s no personal exceptions. If you have children, a family with two children or more is going to, more than likely, have less deductions than they would have.

Karl Eggerss:                      This is real similar to what we’ve talked about several weeks ago when the first iteration came out that under this current system we have, you get $4,050 per person in your household off of your taxes. Obviously, if you have 10 kids or five kids, the more kids you had, the more deductions you had. That is not the case anymore so if you’re just a couple or an individual, you’re going to see some tax breaks. If you’re somebody with a lot of kids in the household, your taxes actually could go up in a vacuum.

Casey Keller:                      Yes, exactly. Now, there is a child tax credit that’s been raised so there could depending on your income. I think, overall, it’s probably going to be a wash but the big difference is what you mentioned, the simplification of it is that a lot of the deductions are going away. For folks that itemized, there’s probably going to be far more people that are not itemizing anymore. There’s very few items to itemized, I guess.

Karl Eggerss:                      Yeah but I mean, it’s interesting. You and I were chatting offline about, “Okay, if it goes to $24,000 instead of the 12, then you have a bunch of people who maybe were itemizing a little bit.” Now, they’re saying, “You know what? I don’t have enough home interest deductions,” all these other things, charity to deduct so I’m just going to take the standard deduction, really easy tax form now in terms of that. The charity part is interesting and I guess, we’ll get to that and we talked about the personal side of this. Overall, simplification is that, more than likely, most people are going to have W2 income, obviously your 41K is taken out of there already, you have your standard deduction, you don’t worry about exemptions, how many kids are in the house, all of that and you’ve got these reduced tax brackets. That’s it.

Casey Keller:                      Yeah. I say most people in this country probably aren’t going to see a big impact in terms of the dollars they pay. It’s going to be marginal initially, it’s just going to be simpler. It may be a benefit for some a little bit and some are going to pay maybe a little more but it’s not going to be a wash..

Karl Eggerss:                      To me, this is a trickle down, good old fashioned Reagan trickle down type of tax plan. The reason I say that is we’re going to talk about the corporate side a minute, there’s a lot of changes on the corporate side that, in theory, would drive more jobs which would benefit most people but dollar for dollar for ur or three, it’s going to be simpler but not necessarily impact them directly bottom line as far as I can see.

Casey Keller:                      That’s correct, yes. The other simplification, no AMT which is a …

Karl Eggerss:                      That’s a good point, yeah. That’s the alternative minimum tax which I joke around talking to people all the time and I go, “Hey Maya, Steve [Days 00:18:26] says they don’t really know how this is … ” They know how it’s calculated but where it impacts and how do we get here? Most of these people say, “We don’t either, we just know that you have to pay it because all these factors came into play.” It’s really goofy tax.

That going away is a big, big deal. Let’s transition. We know this is, to me, more of a business tax break which, again, a lot of small businesses in this country, it’s going to be huge. This is one of the biggest tax reform we’ve seen in 30 years. We know the framework of it. Let’s move to, before we get into the corporate side, the personal side.

Some of the things that are changing on the personal side, we obviously talked about the AMT going away, we talked about the doubling of the standard deduction from 12 to 24. Personal exemptions no longer exists, they’re the same, we’re just combining all that into one number. What are some of the other things to consider? You mentioned the child tax credit, what’s the deal with that in terms of the dollars?

Casey Keller:                      Well, the child tax rate is going up a little bit. It’s going to go up to $1,600 …

Karl Eggerss:                      From a thousand.

Casey Keller:                      From a thousand per child and that does get phased out at certain income levels. It did before and it will in the future as well with this plan but the nice thing is that it’s getting phased out at higher income levels.

Karl Eggerss:                      I think I saw somewhere around $200,000 for a married filing jointly couple. Up to $200,000, you get a $1,600 credit. Tell folks that are new to this whole financial world the difference between a deduction and a credit.

Casey Keller:                      Sure. A deduction is just reducing your income so if you made $50,000 and you get a mortgage interest deduction or any kind of a deduction, deduction is just taking off the top line there. If you had a $5,000 deduction, it looks like you made $45,000 that year. Versus a credit is after you’ve calculated your tax, how much you owed, then they take the credit …

Karl Eggerss:                      A dollar for dollar.

Casey Keller:                      Apply it to that so if you owe $5,000 in taxes and you have two children and you get 3,200 credit off of that. It takes it right off of that, it reduces your 5,000.

Karl Eggerss:                      That child tax credit is per child?

Casey Keller:                      Per child, yes.

Karl Eggerss:                      I assume they have to be under 18, living at home, all those [crosstalk 00:20:43].

Casey Keller:                      Right, there are some rules. If you have college age children, it will reduced but yes, that’s correct.

Karl Eggerss:                      You mentioned something else. Some of these things are, there’s so much in here, but some of the things that I thought was pretty interesting was the Coverdell, which is the educational IRA, maybe going away so that goes back to the 529s. Well, 529s haven’t been able to be used for private schools and so forth, they’ve always been used for colleges, maybe some trade schools. You were telling me that that could be changing where maybe they’re more flexible?

Casey Keller:                      Yes, the current proposal allows 529s to be used for private school elementary and high school expenses which is a complete change. That was not allowed prior to that and the reason they’re doing that is because Coverdell savings accounts, education savings accounts, did allow that. Since they’re getting rid of the Coverdells, they’re going to allow it on 529s. That’s a nice break. That can impact some folks.

Karl Eggerss:                      Especially since you and I have talked to many people who have too much in their 529s and they don’t have anybody else to transfer the balance to and if they take it back themselves, they got taxes and penalties. To be able to say, “I can see I’ve got too much in there, you know what? My kid is going to a private school, I’ll pay for their junior and senior year in high school with my 529,” maybe it’s a great option. That’s an interesting wrinkle. What else, on the personal side, are some changes here? Any highlights of other things that you … ?

Casey Keller:                      There’s a couple. I think one that stands out, that probably doesn’t impact a lot of people, but they’re trying to crack down on house flippers a little bit. Not specifically house flipping per se but the folks that try to use the two year rule and live in a house for two years, sell it and then they’re exempt from any capital gains tax.

Karl Eggerss:                      Up to a certain, what? 500?

Casey Keller:                      500,000. That’s not going to apply to a lot of people but they are saying, “Now, you got to live in a house for five years. Subject to any unforeseen circumstance.”

Karl Eggerss:                      Yeah but it has to be greater than …

Casey Keller:                      $500,000 in gains.

Karl Eggerss:                      Joe and Mary Smith living in a house, they sell it in three years, make 30,000 on it, they’re still not paying any taxes. We’re talking if you make 800,000 because you bought a house in California and the market went up and you made 600,000, in order not to pay tax on that 100,000, you have to have lived in it over five years.

Casey Keller:                      Correct.

Karl Eggerss:                      That will effect, especially the New York’s and the California’s, the higher price markets. Yeah, I could see that. I could also see that if people held it out as a profession, maybe they’d take away and make things, the taxes, a little more difficult but that’s an interesting one.

Casey Keller:                      Yeah. I think probably a bigger one though is for folks that work at big corporations. If you work for a company that provides benefits, tuition assistance …

Karl Eggerss:                      Kind of what they would call fringe benefits.

Casey Keller:                      Fringe benefits. Moving expenses, child care benefits, all of those types of fringe benefits that employers provide, that’s a pretty big deal. Essentially those things were tax free to the individuals before, now it’s going to be counted as income. Those are no longer deductions. The employer will still get a deduction for paying those expenses but to the employee, that’s now going to be considered income. That could be an interesting change for some folks that work for big corporations and have those benefits.

Karl Eggerss:                      There used to be something in there about the government was encouraging adoption so if the employer provided financial assistance for the adoption process, my recollection is that the company got to deduct that payment and the employee didn’t pay taxes on that as income. That may be going away so the employer may still get a deduction to just give them extra money. It’s just like giving them a bonus or any other form of compensation where the employee has to pay taxes on it.

It’s really interesting because a lot of big corporations, they have so many things taken out of the employee’s paychecks sometimes and if they’re deductible, it really helps your taxes. Now, it’s real convenient to have all those things on there but they may not be deductible so that could really change. That’s why this is really interesting. Depending on your specific situation, this tax proposal could actually raise the dollars you pay in taxes overall.

Again, depending on your situation which serves thousands of different combinations of people that work at a big company, the wife’s self-employed, whatever it might be. That’s why we’re going through the general highlights of it. I think even though it’s getting simple, I think CPAs, in the past, have lobbied against flat tax and some of these real simple ways because that’s their business, is to help people do their taxes.

I think getting from A to B if all these things go through, a lot of people are going to have to use an accountant in these first few years to see, “What do I qualify for? What do I don’t? What am I missing?” I don’t think the CPAs will be against this particular proposal but we’ll see as time goes on. Okay, for the sake of time, let’s shift over to, what I think is the crux of this whole proposal which is the corporate side of this. The complaint in the past has been our corporate tax rate in the US has been 35%.

Much higher than most countries around the world. It gives us a competitive disadvantage so that corporate tax rate is coming down. There was some talk earlier this week about phasing it in, the stock market didn’t like that. President Trump said, “No, no. We want it to be a one shot deal. This is what we’re going to do,” so the corporate tax rate drops from 35 to 20, right? It goes to 20% and in addition, what about all those money overseas? We hear about Apple having all these money overseas and they’re saying, “We can’t bring it back in.” What does that mean we can’t bring it back in?

Casey Keller:                      Well, it’s because they would get taxed to bring it back over at a very high rate, that 35% rate. A lot of companies, and we’ve seen Apple do this, they will issue debt or bonds even though they have tons of money or it looks like they have tons of money on their balance sheet. It’s because all the money is sitting overseas and they can’t necessarily spend it without it costing them 35% to bring it back over.

They leave it over there and they go borrow money, which seems really weird for a company that has lots of money like Apple, but it’s very common. A lot of companies do that because they have money tied up overseas and they don’t want to pay. It’s cheaper for them to borrow money than it is to pay that tax. Well, this new proposal is going to allow a one year tax holiday.

It’s not going to be tax free but it’s going to be in a much reduced rate to allow corporations to bring some of that cash over which could be a very big incentive, a shot in the arm for the economy if they take advantage of it. I mean, there a lot of corporations that have billions and billions of dollars overseas and a lot of that money could come back into the US. Maybe it goes to share buy backs, who knows? There are lots of things that we could debate where it goes but the bottom line, there’s going to be more money looking for a home here in the US.

Karl Eggerss:                      Yeah and I wouldn’t really call it a holiday because a holiday would essentially mean that there’s zero tax but from what I saw, I think it maybe 10 and now, I think it’s 12 and then, I think it depends if it’s cash or just assets bringing back in. Let’s just say it’s 12%, yeah, companies are going to take advantage of it.

It can bring that money back, build more factories, hire more people, they can buy back stocks, pay a bigger dividend, whatever they want to do with it, it’s going to give them options. That should be a big boost. People have been wanting that for years because we don’t need this money overseas, we need it here in the US.

That’s one big thing. The lower corporate tax rate and then, bringing the money back, the repatriation. The small business owners, which you hear about every election cycle, we got to help the small business owners, I mean they really never do anything about it.

Most small businesses are structured as pass through entities meaning regardless of what my company makes if it’s an S corporation, that money, whatever that profit makes, it just flows on to the business owner’s tax return. You get taxed at the same rate so it really doesn’t matter from a tax standpoint. That could be changing, right? The pass through entities would be at a different rate than the personal.

Casey Keller:                      Yes and it’s a little bit complicated on how it works. It depends on the type of entity. If it’s from a passive activity, it will be taxed at 25% so it will be a benefit for passive activity such as a real estate company or something that’s providing a passive income where the owner of that entity or partner is not an active participant in that business. If you’re just setup as an S-Corp and you have your company that you’re actively involved with, it’s going to be less of a benefit. They’re basically saying 30% of that income, the profits of the company, are going to be subject to the 25% rate and then 70% is going to pass through. It’s subject to the type of business and there’s some discretion there. If you’re a more capital intensive business, you may be able to have 50% of your profits or 70% taxed at the 20 lower rate but it has to do with the type of company. The bottom line is there, it’s going to be a benefit.

Karl Eggerss:                      It should be a benefit.

Casey Keller:                      Yeah, so it’s going to be a benefit. Just the degree of it is going to vary.

Karl Eggerss:                      I don’t know the specific figures but another thing you mentioned, capital intensive. They’ve also loosened the rules on buying stuff. Instead of having to write off some of that over a certain number of years, you can take more of that deduction in the year you purchase stuff. That’s a big deal because companies are sitting on cash and want that deduction. If they have a nice profit in 2017 that they don’t think will be there in 2018, they’re going to rush out and buy a lot of stuff which obviously greases the wheels on the economy. That’s a big deal. One of the things I saw that was interesting that’s going away is meals and entertainment.

You entertain a client, you can deduct 50% of that, which I don’t think that’s changed, but the entertainment part is gone. You take a client to a athletic sporting event, go see a World Series game, you can’t write that ticket off as entertainment. I mean, you think about things like the pharmaceutical sales industry and all those things that are changing quite a bit. There’s little things in this like that that this is fairly complex. There’s a lot of changes in here that, I mean, are going to affect a lot of people. I think, ideally, the people that are going to benefit the most from what I’ve seen are married couple with no kids with a pass through business, as you’ve mentioned, that use a standard deduction currently. They’re going to get a little bit of everything but in your situation, listening at home, it just depends.

Casey Keller:                      That’s right. The only other big thing that we haven’t touched is the estate tax and for some folks, that’s doubling. What was it? How long ago was it? There seems to be a million awhile back, now it’s 5. …

Karl Eggerss:                      When I started it was $600,000, then it was a million and then, of course, we went to that one year, I think it was in 2011 or ’12. Somewhere around in there where there’s no estate tax just for that year. I did have a client that, a very wealthy client, his father passed away that particular year, like in December. I joked around that, “This gentleman, if he had brothers, he would have done it that way and save the family some estate taxes.” Yeah, so then it jumped up to the 5.425, I think, million per person. That’s now going to be 11 million per person. There’s still estate tax there and I think it’s going to be phased out. Again, I don’t know if this is permanent or not but it’s supposed to be phased out to eliminate it completely which it is one of the dumbest taxes we have. You pay all these income tax and at the end of your life, wham, they hit you with 55% taxes.

Casey Keller:                      Yeah, absolutely. That’s a positive for some folks that that will [crosstalk 00:32:50] taxes.

Karl Eggerss:                      It makes estate planning much simpler for most people and that’s the idea. You do have some people that are business owners, they sell their business for 4, $5 million and they’re right on that fringe of, “Yeah, it may need estate planning. You have to start getting into family limited partnerships and all this complexity,” and this will alleviate some of that. The other weird thing, this is something you and I thought have thought was really interesting, tell me about the special tax bracket for the high income earners. What’s the deal with that?

Casey Keller:                      Yeah. It’s very peculiar but right now, the highest tax bracket is 39.6 and that is not going to change going forward except for one exception. There’s this peculiar area where if you make a million dollars, instead of the 39.6% tax bracket, they’re going to add another 6%. For every dollar made over a million dollars, they’re going to tax at 6% up to, I think, it’s around 1.6 million and then, it drops back down to 39.6 again.

Karl Eggerss:                      If you make 1.7, you got 600,000 or let’s use another example. Let’s say you make 2 million, there’s 600,000 in there that’s taxed at a 45% rate. Being somewhat of a skeptic as I am, I look at this and think, “Does the IRS have so much data on us that they say, ‘You know what? Most millionaires are right in this sweet spot of 1.5 million so we’re just going to jack the rate up for that particular amount. We’ve looked at our returns, there’s a lot of people in that area.'” This is very strange.

Casey Keller:                      I haven’t heard any explanation yet on that but it is very strange and it is complicated to say that you have this extra tax bracket just for 1 to 1.6 million, then it goes right back down to 39.6 again.

Karl Eggerss:                      Very strange. Then by the way, the Obamacare surtax, the 3.8% does not go away because that’s tied to the healthcare. Hopefully, that will eventually. One other thing I was going to talk about is you and I were discussing charities. Right now, because less people will itemized, they’re not going to get to deduct their charitable contributions, right?

Casey Keller:                      More than likely. I mean for most in this country, correct, that is the case.

Karl Eggerss:                      That’s a negative for charities. Charities know that a lot of people give, not out of their heart necessarily, but because they get a deduction. Again, to get that deduction, you had to itemize and so if it goes up to 24,000 now for the standard deduction and people don’t have to itemize, there may be less propensity to give to charities.

Casey Keller:                      It definitely seems that way. I mean, unless you’re itemizing more than 24,000 which most people will probably not be doing, you could be giving $5,000 away to charity and not get any benefit from it from a [crosstalk 00:35:44].

Karl Eggerss:                      Yeah. It’s funny, I mean all these things we’re talking about, you push one button over here, it’s like Whack-A-Mole. You hit one thing over here and another one pops up. If it helps you, your neighbor may be hurt by the same thing. It just depends but I think you did a really good job of consolidating. Again, we could sit another couple of hours and go through every detail but there’s a lot of information on this so if you guys want more details, obviously, browse around the internet. Now, there are folks that say, “Hey, this doesn’t have a chance of going through the way it’s structured because there’s a lot of the stuff in here that’s going to hurt people, blah, blah, blah.” Who knows? That’s not our job, our job is to tell you where we think the benefits are and it certainly looks like a corporate benefit with a trickle down effect which, again, it may be the right plan. Casey Keller, thank you very much for that.

Casey Keller:                      My pleasure.

Karl Eggerss:                      By the way, you and I are both extremely excited. Houston Astros are the World Series champs. I’ve been a fan since 1986 when I started following baseball. Of course, that was a great year to start watching the Astros, that year ended as a disappointing year and had been through the hundred loss seasons.

Casey Keller:                      Just amazing.

Karl Eggerss:                      Amazing goosebumps that night. For all the Houston fans, of course, going through all the stuff you all been through the last few months, what a cool victory.

Casey Keller:                      Absolutely fantastic.

Karl Eggerss:                      Rangers fans, sorry. We do have a lot of Dallas listeners but sorry. San Antonio, we got the missions. Do we still have the missions? I think we’ll end up with missions.

Casey Keller:                      I think we did, yeah.

Karl Eggerss:                      A victory there. Ironically, there used to be Dodgers minor league team so hopefully, we’ll go pro-ball here at some point. All right, guys, have a wonderful weekend. Don’t forget Don’t forget on the podcast, put a comment on iTunes, go subscribe to it, tell your friends about it. We’re on Facebook, we’re on Twitter, Instagram, Youtube, you can subscribe to our Youtube channel. All those different ways to get our information every week. I would encourage you to go read the article we posted, It’s Not Over Yet. Go read that article, I think it’ll help you if you own individual stocks to look at them in a slightly different way. All right, have a wonderful weekend. Take care, we’ll see you right back here next week on the Eggerss Report, It’s Your Investing Playbook.

Speaker 4:                          This show is for entertainment only and the information provided by the host, guests and this station should not be deemed as advice. Your investment decision should be based on your own specific needs. You should do your own research before you make those decisions. As President and CEO of Eggerss Capital Management, Karl Eggerss may hold securities mentioned in the show for himself and his clients. Just don’t buy or sell anything based on what you get from radio or TV, use your own judgment or get yourself a trusted advisor.


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