Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
CHIA Getting Started SSD Crypto Mining by Plotting and Farming on Your Hard Drives Guide - 9th May 21
Yaheetech Mesh Best Cheap Computer /. Gaming Chairs on Amazon Review - 9th May 21
Breaking US Trade Embargo with Cuba - Build 7 Computers in 14 Hours Before Ship Sales Challenge - 9th May 21
Dripcoin Applies New Technology That Provides Faster Order Execution - 9th May 21
Capital Gains Tax Hike News: Was It REALLY to Blame for Sell-off? - 7th May 21
Stock Market Transportation Index Continues To Grind Higher - 7th May 21
SPX Stock Market Correction Arriving or Not? - 7th May 21
How to Invest in an Online Casino? - 7th May 21
Gold & Silver Begin New Advancing Cycle Phase - 6th May 21
Vaccine Economic Boom and Bust - 6th May 21
USDX, Gold Miners: The Lion and the Jackals - 6th May 21
What If You Turn Off Your PC During Windows Update? Stuck on Automatic Repair Nightmare! - 6th May 21
4 Insurance Policies You Should Consider Buying - 6th May 21
Fed Taper Smoke and Mirrors - 5th May 21
Global Economic Recovery 2021 and the Dark Legacies of Smoot-Hawley - 5th May 21
Utility Stocks Continue To Rally – Sending A Warning Signal Yet? - 5th May 21
ROIMAX Trading Platform Review - 5th May 21
Gas and Electricity Price Trends so far in 2021 for the United Kingdom - 5th May 21
Crypto Bubble Mania Free Money GPU Mining With NiceHash Continues... - 4th May 21
Stock Market SPX Short-term Correction - 4th May 21
Gold & Silver Wait Their Turn to Ride the Inflationary Wave - 4th May 21
Gold Can’t Wait to Fall – Even Without USDX’s Help - 4th May 21
Stock Market Investor Psychology: Here are 2 Rare Traits Now on Display - 4th May 21
Sheffield Peoples Referendum May 6th Local Elections 2021 - Vote for Committee Decision's or Dictatorship - 4th May 21
AlphaLive Brings Out Latest Trading App for Android - 4th May 21
India Covid-19 Apocalypse Heralds Catastrophe for Pakistan & Bangladesh, Covid in Italy August 2019! - 3rd May 21
Why Ryzen PBO Overclock is Better than ALL Core Under Volting - 5950x, 5900x, 5800x, 5600x Despite Benchmarks - 3rd May 21
MMT: Medieval Monetary Theory - 3rd May 21
Magical Flowering Budgies Bird of Paradise Indoor Grape Vine Flying Fun in VR 3D 180 UK - 3rd May 21
Last Chance to GET FREE Money Crypto Mining with Your Desktop PC - 2nd May 21
Will Powell Lull Gold Bulls to Sweet Sleep? - 2nd May 21
Stock Market Enough Consolidation Already! - 2nd May 21
Inflation or Deflation? (Not a silly question…) - 2nd May 21
What Are The Requirements For Applying For A Payday Loan Online? - 2nd May 21
How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part1 - 1st May 21
INDIA COVID APOCALYPSE - 1st May 21
Are Technicals Pointing to New Gold Price Rally? - 1st May 21
US Dollar Index: Subtle Changes, Remarkable Outcomes - 1st May 21
Stock Market Correction Time Window - 30th Apr 21
Stock Market "Fastest Jump Since 2007": How Leveraged Investors are Courting "Doom" - 30th Apr 21
Three Reasons Why Waiting for "Cheaper Silver" Doesn't Make Cents - 30th Apr 21
Want To Invest In US Real Estate Market But Don’t Have The Down Payment? - 30th Apr 21
King Zuckerberg Tech Companies to Set up their own Governments! - 29th Apr 21
Silver Price Enters Acceleration Phase - 29th Apr 21
Financial Stocks Sector Appears Ready To Run Higher - 29th Apr 21
Stock Market Leverage Reaches New All-Time Highs As The Excess Phase Rally Continues - 29th Apr 21
Get Ready for the Fourth U.S. Central Bank - 29th Apr 21
Gold Mining Stock: Were Upswings Just an Exhausting Sprint? - 29th Apr 21
AI Tech Stocks Lead the Bull Market Charge - 28th Apr 21
AMD Ryzen Overclocking Guide - 5900x, 5950x, 5600x PPT, TDC, EDC, How to Best Settings Beyond PBO - 28th Apr 21
Stocks Bear Market / Crash Indicator - 28th Apr 21
No Upsetting the Apple Cart in Stocks or Gold - 28th Apr 21
Is The Covaids Insanity Actually Getting Worse? - 28th Apr 21
Dogecoin to the Moon! The Signs are Everywhere, but few will Heed them - 28th Apr 21
SPX Indicators Flashing Stock Market Caution - 28th Apr 21
Gold Prices – Don’t Get Too Excited - 28th Apr 21
6 Challenges Contract Managers Face When Handling Contractual Agreements - 28th Apr 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Many Stock Market Investors Are Waiting for the New Tax Plan to Hit the Sell Button

Stock-Markets / Stock Market 2017 Nov 20, 2017 - 03:12 PM GMT

By: John_Mauldin

Stock-Markets

BY PATRICK WATSON : Congress is deciding your portfolio’s future right now—so you might want to pay attention.

In Connecting the Dots six months ago, I said, “There will be no tax cut this year, and likely not in 2018, either.” I still see almost no chance that anything will pass.

Saying the parties are divided would be an understatement. It’s a chasm that separates not just Democrats and Republicans, but Republicans internally as well.

Add the lobbying firepower brought in by those who stand to lose and any significant changes are almost impossible. So we’re probably stuck with the present system.


Which is a problem because the present system is bananas.

Incentivizing Irrational Decisions

The present tax system rewards activities that hurt the economy (like unproductive debt) and punishes things that would help. And it still doesn't raise enough cash to balance the budget.

For a while, politicians were at least saying the right things. They talked about giving us a fairer, simpler, flatter tax code. That would be great… but it’s not what they decided to do.

Critics on the left say the Republican proposals favor the rich. That’s partly true, but it matters a great deal how you got rich.

For instance, here’s a bit from the Wall Street Journal’s analysis of the House plan:

Take a simplified example of $2 million, received at the relevant top rates, by five different people: a salaried executive; the owner-operator of a manufacturer; an investor receiving dividends; a passive business owner, such as one who has a stake in a real-estate property; and an heir from a large estate.

Under the GOP plan, the executive would pay $868,000 in taxes, according to a rough calculation by Tony Nitti, of WithumSmith + Brown, an accounting firm. The manufacturer pays $704,400, but might be able to argue her way into a lower bill. The passive business owner pays $576,000. The dividend-earning investor pays $476,000. The heir to the estate pays nothing. The manufacturer, the estate and the passive owner all get big tax cuts from the GOP plan. The investor and the wage earner generally don’t.

So, five different wealthy people who make $2 million would pay anywhere from zero up to $868,000 in taxes, depending on occupational and investment decisions they made years ago and can’t possibly change now.

Keep in mind, that’s not the present system. It’s a proposed improvement to the present system.

So, if this is what the politicians who promised us a flatter, simpler, and fairer system tried to deliver, they failed.

And we haven’t even talked yet about the nutty things they want to do on the corporate side.

20% of What?

Investors tend to think about returns and risks: How can you make 20% without risking a 50% loss?

Those are important questions, but they leave something out.

You can’t spend a percentage. Even if your investment goes as planned, you have to ask, “20% of what?”

Investing more dollars will cause your investments to earn or lose more money—and you can only invest more if you have more.

In other words, the amount you invest is a function of your gross income, the taxes you pay on it, and your living expenses.

You can control those things, at least partly. You can’t control whether a stock goes up or down. Yet most of us put more effort into analyzing markets than into growing our after-tax income.

Of course, you don’t want to ignore the markets, but you should also think about other factors. Like whether the tax system rewards or punishes your investment decisions.

Exit Strategy

Calculating your after-tax return would be easier if we had a simpler system. But we don’t, nor are we likely to get one soon. That means people will keep making economically irrational decisions because the tax code rewards or punishes them.

This year, we're in an even deeper pickle.

Investors are making decisions based not on the current tax system but on the dangling carrot we might get at some point.

One reason market benchmarks have hit new highs repeatedly this year: some investors don’t want to sell, because they think waiting for 2018 will increase their after-tax gain.

I think that’s a bad bet.

If you’re holding a stock you would otherwise sell, simply because delaying the sale might enhance your after-tax gain, you're taking a risk. The stock price could drop enough to offset your hoped-for tax benefit—and then drop even more.

That’s more likely to happen when a bunch of people are waiting for the same time to hit the sell button. Like now.

Good luck getting to the exit first.

Free Report: The New Asset Class Helping Investors Earn 7% Yields in a 2.5% World

While the Fed may be raising interest rates, the reality is we still live in a low-yield world. This report will show you how to start earning market-beating yields in as little as 30 days... and simultaneously reduce your portfolio’s risk exposure.

Claim your free copy here.

John Mauldin Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in