Here’s What Trump’s Successful Tax Reform Means To You And Stock Market

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Dec 04 2017
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Donald Trump is indeed a very happy man. Not even the decision by Michael Flynn, a former national security adviser to the U.S. president, pleading guilty to lying to the FBI could make Trump lose his sleep. An early and vocal Trump supporter, Flynn has apparently made a U-turn and agreed to co-operate with special counsel Robert Mueller’s probe.


Flynn has reportedly pointed his finger at Donald Trump, bitching and whining that the U.S. president has abandoned him – alone – with mountains of legal fees fighting the U.S. Department of Justice. Still, it would be an uphill task proving that there was collusion between Trump and Russia in the 2016 presidential election.


On the other hand, Trump can celebrate as his tax reform has just scored a huge success. While the House Republicans passed their version of the Tax Cuts and Jobs Act in November, the Senate Republicans voted to pass their version on Saturday. And President Trump could flash this tax reform as his greatest achievement so far since taking office.

Donald Trump - Happy Face Demanding Encore

Before President Donald Trump can make tax reform official, there’s one final thing to do – reconcile the two bills and combine the best of both into a final bill. Not that the Republican lawmakers have any choice with the coming 2018 mid-term election, the GOP leaders were also spooked by what Trump could and would do to them had they kept dragging their feet over the tax reform.


But what does the tax reform mean to a family of 4 in their 2018 taxes, if they make US$25,000, US$75,000 or US$175,000 annually? The bills proposed by both the Senate and the House are slightly different. While the House’s bill proposes a standard deduction of US$24,400, the Senate’s bill says married taxpayers who file jointly and have 2 children can deduct US$24,000.


Under Senate Republicans’ tax plan, the tax savings for an American family of four:

  • US$25,000 household income: estimated annual tax savings of US$100.
  • US$75,000 household income: estimated annual tax savings of US$2,244.
  • US$175,000 household income: estimated annual tax savings of US$3,095.

Donald Trump Tax Reform - 1040 Income Tax Return

Under House Republicans’ tax plan, the tax savings for an American family of four:

  • US$25,000 household income: estimated annual tax increase of US$72.
  • US$75,000 household income: estimated annual tax savings of US$1,711.
  • US$175,000 household income: estimated annual tax savings of US$2,264


Of course, for those who are single, childless taxpayer, the tax savings would be higher but the amount is insignificant. While most Americans will see a slight increase in their take-home pay under Trump’s tax reforms, the biggest winners are none other than the already fabulously wealthy Americans – including billionaire President Donald Trump.


The “alternative minimum tax (A.M.T.)” was designed to make it harder for very rich individuals to game the tax system and pay less tax. However, Treasury Secretary Steven T. Mnuchin called it a “complicated” additional system of taxation so the AMT is being killed. Although 4-million taxpayers are subject to this tax, there’s a good reason why President Trump wants to get rid of AMT.

Trump Family Photo - Tax Reform Will Save His Family US$564 Million

Based on Trump’s 2005 tax return where he paid US$38.5 million in federal taxes that year, Trump would have paid only US$7.5 million without AMT. Essentially, his effective tax rate on US$153 million in income (Donald Trump’s 2005 tax return) would plunge to less than 5%. Needless to say, this is perhaps once in a lifetime opportunity for Trump, as the U.S. president, to throw away this tax.


The just approved Senate tax bill will also benefit investors investing in the stock market. A corporate tax rate cut to 20% from 35%, to hit companies in 2019, means American corporations such as Apple Inc. will see a profit boost from lower taxes. But the real winners are none other than investment bankers such as Goldman Sachs, Morgan Stanley, Citigroup and JPMorgan & Chase.


That explains why the Dow Jones spiked 203 points to 22,441, overwhelming an earlier spook of the damage that Michael Flynn could deal on Trump administration. The tax bill is a “political relief” for the Trump administration. Even a so-called Godfather of technical analysis – Ralph Acampora – now says that Dow could skyrocket to 25,000 “before” we could celebrate New Year 2018.

US Dollar Bill - Donald Trump

A new wave of M&A (merger and acquisition), not to mention shares buyback, will most likely skyrocket. However, some analysts think such taxes slash is “fiscally irresponsible” simply because it’s a wishful thinking that growth will pay for the cuts. The Senate tax plan will increase the deficit by more than US$1.4 trillion over a decade.


But with external debt amounting to US$20 trillion, and counting, an additional US$1.4 trillion over the next 10 years seems like a harmless deal from Donald Trump. After all, former President Barack Obama of whom the liberals worshipped had added US$8 trillion to the U.S. national debt during his 8 years in White House – averaging US$1 trillion every single year.


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