tax planning

Will Tax Cuts Create Growth?

              Tax cuts can stimulate the economy. However, many articles written about tax cuts don’t clarify some serious misunderstandings. The typical article criticizing tax cuts cites the 91% tax rate started in the New Deal that was from 1933 to 1963 and compares it to today’s lower rates. But these articles fail to mention that before the 1986 tax law changes investors could cavalierly buy a legal tax shelter using leverage at the end of the year and get tremendous savings. Someone could pay $100,000 to buy a limited partnership unit that provided an immediate $300,000 write off thus eliminating their tax bill. The best way to judge the economic impact of tax cuts is to step back and gain

2017-05-01T12:08:12-07:00 May 1st, 2017|mayflowercapital blog|Comments Off on Will Tax Cuts Create Growth?

Will Border Tax Adjustment Cause Inflation?

If the proposed Border Tax Adjustment becomes law there are three scenarios: Scenario A. The consumers and business simply ignore it and consumers pay it to access foreign made goods. This would increase consumer prices since the tax would be embedded in the retail cost of goods. However consumers would react to higher prices by cutting back on purchases thus provoking some retailers and manufacturers, including foreign companies to cut costs. Also the dollar might go up slowly to partially offset this, making the cost of imported goods lower than it would have been. In this scenario little or no increase in domestic employment results. This in turn avoids inflation that is caused by rising wages that enable larger bank

2017-02-23T10:56:13-08:00 February 23rd, 2017|mayflowercapital blog|Comments Off on Will Border Tax Adjustment Cause Inflation?

New Border Tax Law’s Effect On The Economy

The proposed new tax law called the Border tax adjustment will tax goods imported by businesses and not tax goods that are exported. What is unknown is will services also be taxed. AEI.org ran an excellent article and here warning that taxing services would cause a problem because when foreigners come here to pay for a university or a vacation this is a form of exporting of services yet it wouldn’t get tax benefits the way that tangible exports would. Thus if foreigners suffered from a rapidly rising dollar they would reduce purchases of U.S. based services and thus the economy would lose business in some areas. Thus the Border tax might not increase economic growth and employment. There is

2017-01-11T14:36:59-08:00 January 11th, 2017|mayflowercapital blog|Comments Off on New Border Tax Law’s Effect On The Economy

Municipal Bonds: Will The Tax Exemption Be Eliminated?

Occasionally rumors in the news media hint that the new administration will seek legislation to outlaw the use of tax-free Municipal bonds. I doubt this will occur. The administration will be busy developing and implementing complicated radical new programs such as a corporate paid tariff called “border adjustment”, technically a tax on corporate income. The political energy needed to handle requests for exceptions and clarifications regarding the border tax will divert the administration’s attention from a much smaller issue like that of tax-free Munis. Assuming that a lot of the administration’s support comes from small towns and rural states then these entities may be able to persuade Trump not to risk damaging small cities and states by eliminating tax-free Muni

2017-01-11T14:42:27-08:00 January 10th, 2017|mayflowercapital blog|Comments Off on Municipal Bonds: Will The Tax Exemption Be Eliminated?

New Tax Laws Effect On Interest Rates

It is rumored the new administration might seek tax laws that outlaw the deduction of interest by businesses. This would create less demand for loans which would lower interest rates. The other rumor is that they would end Municipal bond tax-free interest income. This would make city and state governments pay more for interest since those bonds would no longer be tax-free. This would discourage the issuance of investment grade debt thus making the severe shortage of investment grade debt even worse, which would raise bond prices and lower yields. If interest expense is not allowed as a tax deduction for business then corporations might issue more stock and pay off loans. This would absorb capital that otherwise could go

2016-12-28T14:40:11-08:00 December 28th, 2016|mayflowercapital blog|Comments Off on New Tax Laws Effect On Interest Rates

Corporate Tax Cuts Effect On The Economy

If corporate taxes are cut from 35% to 15% that will help stimulate the economy. However many giant companies have fully utilized offshore tax havens for their subsidiaries which will now be outlawed. For those companies their effective tax rate will actually go up. This will reduce net income for the aggregate of publicly traded companies since many small caps that don’t operate offshore are so small that they are miniscule compared to the Fortune 100 or Dow 30 companies. Thus the cuts could actually make large cap stocks slightly less attractive. The stimulus will come from the benefits that companies that are not publicly traded and that are “C” corporations (meaning they are not a flow-through entity) get from

2016-12-08T12:30:16-08:00 December 8th, 2016|mayflowercapital blog|Comments Off on Corporate Tax Cuts Effect On The Economy

Tax Cuts to Make Some Companies Look Worse

If a U.S. company makes no domestic profit and makes $100 profit in a foreign subsidiary that pays no tax then its income for accounting (not tax) purposes is $100. If the new tax law of 2017 allows foreign income to be repatriated at 10% tax rate presumably the company would so to avoid paying a higher tax rate in ten years when the legislation sunsets out of existence. But then its income after tax would be 10% lower and the company would have to report earnings dropped 10%, even though it would be better off than if it paid a 35% tax many years later. Since a corporation is valued on its after-tax earnings this would reduce the value

2017-01-10T23:32:50-08:00 November 22nd, 2016|mayflowercapital blog|Comments Off on Tax Cuts to Make Some Companies Look Worse

Tax Cuts Can Stimulate The Economy

Supply side trickle down economics does work. Some people criticize it but it works. During the era of ultra-high interest rates imposed the Federal Reserve in 1979-1986 tax cuts helped to offset the deflationary aspects of high interest rates. The 1986 tax law outlawed many tax shelters and tax rates were cut. The result was that tax revenues as a percent of GDP remained about the same. Basically the tax cuts were financed by closing loopholes. Thus the “huge tax cuts” of 1986 were a myth. This law and additional changes in 1988 closed tax loopholes for real estate that resulted in real estate investors losing money so that real estate crashed and the Savings & Loan industry crashed. This

2017-01-10T23:32:52-08:00 September 29th, 2016|mayflowercapital blog|Comments Off on Tax Cuts Can Stimulate The Economy

New Administration Likely to Raise Taxes

It seems highly likely that the November election has already been decided. The new administration will seek to raise taxes. If the Senate and the House of Representatives are controlled by the Democrats then taxes will rise. Typically the ideal time to raise taxes is right after an election. The economy has been growing at only 1% and capex expenditures have been growing at only half the rate of the typical recovery. Thus even a small tax increase could result in a recession. Recessions cause investors to flee stocks and move into bonds. Countering this tendency will be the fact that Democrats prefer more fiscal stimulus than Republicans, so that could act to offset some of the recessionary impact of

2017-01-10T23:32:53-08:00 August 15th, 2016|mayflowercapital blog|Comments Off on New Administration Likely to Raise Taxes

Estate Tax Planning For The New Administration

Investors need to do tax planning for the new post-election regime. The best guess is that there will be gridlock between a House controlled by Republicans, a narrowly divided Senate subject to filibusters, and a Democratic president. Clinton proposed lowering the estate tax tax-free exemption from $5.4 million to $3.25 million per person. Also, the tax won’t have an inflation adjustment so in a decade it might be the inflation adjusted equivalent of $2 million per person. This means married couples who assumed the first $11 million would be tax free of estate tax will have to pay more. When the estate tax was changed on 1-1-2013 in the “Fiscal Cliff” negotiations it was a huge increase in the exemption

2017-01-10T23:32:54-08:00 August 3rd, 2016|mayflowercapital blog|Comments Off on Estate Tax Planning For The New Administration