By: Edward Leone Jr. CFP RFC RIA MBA DMD
Contact Information: edleonedds@gmail.com 303-478-6793
We are all very much aware of the rhetoric coming out of Washington DC regarding tax reform. It will be interesting to see at what level the corporate tax rate is set. 15% would be very competitive globally and allow many business owners who have set up a corporate structure which allows business income pass-throughs (partnerships, LLCs, S corps etc.) a benefit since this would create a tax advantage to those who could take the income pass-through at this lower rate instead of a salary taxed at their higher marginal tax rate. The level of marginal tax rates along with the selected elimination of some tax deductions will be another very important ingredient in the effects of tax reform legislation. Another element in tax reform legislation which relates to the treatment of PSAs and HSAs will have impact on potential health care reform legislation. Let the show go on!
US and global equity market returns are still positive due to slowly improving economic conditions and reports on positive earnings in some key industries (e-commerce and technology for example). The expectation of tax reform and reductions in regulation burdens is still a driver in the US equity markets in my opinion. Dividend payments along with stock price increases have mitigated in some fashion the burden for income generation with existing low-interest rates on fixed income investments, but there may be additional future investment risk in the short-term.
According to a study done by Willis Towers Watson, there has been an over all reduction in employer contributions to retirement benefits of about 25% to employees over the last 15 years. This is due to the conversion from defined benefit pension plans to defined contribution plans such as the 401K. The defined contribution plans must be built more on employee savings habits and discipline than on employer contributions in most instances. There also seems to be a trend of decline in retiree health care benefits.
Alicia Munnell who is director of the Center for Retirement Research at Boston College, shares information that the average US citizen would like to see Social Security benefits be retained at current levels. There is a cash flow shortage in this program which will become very evident in the year 2034 as projected. Measures to adjust the incoming assets to the program are viewed as politically unpopular and are being delayed into the future. The longer we wait to institute measures such as increase in full retirement age, adjustment in payroll tax levels and disability and surviving family member benefits, the more painful and dramatic these changes will be. The government management of the “Social Security Trust Fund” must also be addressed. Author and financial advisor Ric Edelman has proposed a method to privatize the Social Security Program which appears to be significantly beneficial to participants due to increased earning patterns for assets invested over many years instead of the government strategy now being employed. It is likely that government will not want to give up control of this program. What and when??
The summer season will end in several weeks on Labor Day– a day off to celebrate working!!
For The Record:
DJIA 21,830.31
S&P 500 2,472.10
NASDAQ 6,374.68
Suggested Reading “Back Stage Wall Street” by Brown
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