Market Monday: Tax Reform Plan

Who: GOP

What: Conference committee will meet to discuss differences in tax bill plans.

When: ASAP

Why: House and Senate need to resolve all differences to get a bill passed by year end.

My Thoughts

This site is intended to be neutral as far as politics are concerned. However, tax reform and investing go hand in hand. There is so much talk about this bill in the media right now that it is important for the personal finance community to discuss it. When senators pop up on everyone’s television talking about sweeping tax reform people start to get nervous.

I am a big believer in not letting the tax tail wag the dog. In my opinion no one should be getting worked up about these changes to the point of shifting around any major investing strategy. Long term consistent strategies regardless of policy are what will make you the most money. If you have a sound plan in place that has been working for you stick with it. There will be ups, and downs with any plan and it is important that you stay the course.

I am very interested to hear everyone’s opinion. Feel free to get after it in the comments and speak your mind. Are any of you worried that you will be affected in a big way (as far as your investments are concerned)? Is anyone going to try to time the market? Personally, I plan on staying with my strategy regardless of the changes. My guess (for what it is worth) is that the market will become much more volatile as we head into 2018.

My words of advice would be to make sure you learn what is happening but do not let it freak you out. This to shall pass stick with the strategy that has gotten you to where you are today and continue to build wealth.

What Are Your Thoughts?
  1. Are you hoping the tax bill gets pushed through?
  2. What parts of the tax bill do you favor?
  3. What parts of the tax bill do you oppose?

Spread The Wealth!

24 Comments on “Market Monday: Tax Reform Plan”

  1. Hey DM –

    Thanks for sharing your thoughts. And indeed – a lot of uncertainty. On your questions:

    1. Are you hoping the tax bill gets pushed through? – Neutral. I’m very happy about the standard deduction potentially doubling. That said, I understand other things will offset that particular aspect (reduction in credits, etc.).

    2. What parts of the tax bill do you favor? – see item #1.

    3. What parts of the tax bill do you oppose? Non-profits might take a hit. Without the ability to itemize, some might be less inclined to donate, but certainly not everyone. A few other aspects. A lot of folks might also be upset about the potential reduction in mortgage interest.

    Overall, it depends where you live, your income, whether you have kids, whether you rent or buy, and various other personal factors.

    This is why I’m a big fan of leveraging multiple account types. No one knows what taxes will be in 5, 10, 15, or +20 years – not even next year yet.

    Related:
    https://www.balanceddividends.com/balancing-account-types-to-balance-lifes-unknown-milestones/

    -Mike

    1. Thanks for the input Mike. I agree with you on taking advantage of multiple accounts and investment types. It is important to have different resources to pull from as changes will inevitably occur over our lifetimes.

  2. It’s pretty interesting (amusing??) that Canada is taxing businesses more and the US is trying to tax businesses less.
    I’m pretty neutral about it all and will continue with my dollar cost averaging.

    1. I find it all really interesting as well. Ultimately I am with you and do not change my strategy, big fan of DCA into the market.

  3. I am surprised to have hear so much negativity from the media about this Tax Reform. I suspect (know) the biggest problem they have is that Trump is associated with it.

    The standard deduction amount doubling is crazy good for the majority of Americans. Now almost everyone will be filing a standard deduction. Certainly good for our household.

    We also fall into one of the tax brackets that is dropping a few percentage points.

    I don’t own a business (yet) but I fully support businesses having more money in their pocket to invest back into their business. The corporate tax rate dropping 15% is huge for that.

    1. It is interesting how people perceive the bill. Obviously there are a lot of factors to it that will have a bigger impact to different people. Most people do not itemize as is so I would also think that more people would enjoy the boost of the standard deduction.

  4. Mr. DM, The potential loss of state and local tax deductions is the killer for us. We live in a high property tax county in a high tax state. I like that the corporate tax rate reduction will make our domestic businesses more competitive, globally but of course not at my personal expense. Bottom line, wish this dog (no disrespect to our canine friends) would die in Congress. Tom

    1. Thanks for the input Tom. I have thought about the SALT piece a lot and the potential negative impacts on high state tax areas. It will be interesting to see what will happen.

  5. Being Canadian I don’t follow American politics other than what is discussed on the business channels. It will be interesting if House and Senate will be able to agree and pass it before year end. I agree I would stick to my strategy and not freak out, it might move the broad indexes but should not effect individual investors very much.

  6. I plan to continue my DCA especially in my 401k since I recently moved into low-cost index funds. But in my after-tax, I’m not sure if I should deploy anymore. I agree the market may experience more volatility in 2018 and a greater chance of increased interest rates to add to that. Taxes could be very concerning for people considering how to manage their RMDs, however. 🙂

    1. Good call on switching to low cost funds! Time will tell as I am sure many things will change in the upcoming weeks.

  7. Hey DM! I personally plan to continue my investing (mostly DCA) as if nothing happened, regardless of whether tax reform passes. Other than that, I do not yet have a clear picture of whether my taxes would increase or not; my current impression is that they would not change by a whole lot.

    1. Hey Miguel, I think that is a great plan. I hear a lot of people outside of the personal finance community trying to make crazy plans to react to “posssible” changes.

  8. First, I definitely think you can simultaneously believe that people should approach personal finances regardless of tax policy and not use it as a mistake while also having a policy opinion on the topic. I’m all for lower taxes but I’m concerned about the deficit. With that being said, cutting spending is probably 10x more difficult from a political standpoint than cutting taxes. Unfortunately that means our debt keeps going up.

    1. 20 Trillion is nothing our kids can’t handle, pass it on to the next generation its the American way! It is concerning that is for sure.

  9. I’m heavy into real estate. The bills are very pro real estate. I still don’t support this so called “tax reform.” I do like the increased standard deduction and reduced corporate rate, but I feel there needs to be a better deal for the middle class – those making between 50K and 100K.

      1. I read that there will be more favorable depreciation rules and none of the current deductions will be touched (unlike other business sectors that will.) Also, REITS get very favorable enhancements. Don’t know enough about those to comment here though.

SPEAK UP!