The proposal for tax reform is out, but unfortunately it is light on details. Having reviewed the proposal, we have a few thoughts:
- The process for Reconciliation (basically passing the law) is extremely complex and based on the proposal outline almost impossible to pass under its current form without Democratic support. Tony Nitti at Forbes has an excellent analysis on this. You can read it here.
- It is too soon to say exactly who the winners and losers will be, but we'll take a stab.
- The really high income earners (1%'ers) should experience quite a windfall since they are seeing their top rate go down from 39.6% to 35%. Even with losing some deductions someone making $1 million + should see a massive tax cut
- Those on the fairly low end of the income scale could see a cut since the standard deduction is going to double, meaning more people may be in the 0% bracket
- Those families with lots of dependents could be worse off since personal exemptions (basically a deduction per person in the household) are removed
- Individuals in high tax states could be worse off since state taxes are no longer deductible (think NY, CA, NJ, MD, etc) in this proposal (mortgage interest and charitable contributions remain as itemized deductions)
- Small business owners with high incomes in pass through entities (S-Corps, LLC, Partnerships, etc) could see a gigantic tax cut. This is pretty much all small businesses. The highest proposed pass through rate will drop from 39.6% to 25%. There are no significant details on this but previous comments made state that this may not apply to service companies (which make up about 85% of the US economy). If this passes, another huge win could be tax planners, attorneys and consultants working out how to exploit this loophole.
- Families with large estates could be big winners- the proposal eliminates the estate tax
- There is no mention to many things that will impact our clients- at what income do the rates start? what is happening to the tax on capital gains and dividends? Are the Obamacare taxes going to be kept intact?
At this point it is just to early to tell. The numbers don't add up so there will have to be significant changes to this proposal. Also, whenever you change the code you create winners and losers. The losers usually have lobbyist that will come out in full force (real estate industry, Wall Street, etc). Once they realize they could be on the losing end, expect some backlash. There is a reason we haven't seen major tax reform since 1986. It is a hard process due to the literally hundreds of competing interests involved. It should be interesting to see how this plays out…
At Greenspring, our core purpose (why we exist) is to “Improve lives by helping people make better decisions for themselves and those who depend on them” and our very first core value (how we live) is to “Love your neighbor”. We we take seriously our responsibility to be good stewards of the resources entrusted to us by our clients and we believe that part of that responsibility involves giving back to causes and organizations that support those in need. As a firm, we commit to give 10% of our profit to charity each year through the Greenspring Charitable Fund, the Greenspring Grant Program and other charitable endeavors. Since inception, we have given more than $500,000 to charity and we have a 20-year goal of giving in excess of $15 million.
Over the years we have developed a national client base of both individuals and companies we serve with many people in areas like Florida and Texas that were hard hit by Hurricanes Harvey and Irma. As a show of support and unity with those affected, Greenspring is proud to have recently made separate contributions of $5,000 to both relief efforts through the American Red Cross. To see how the American Red Cross is supporting efforts those in need please visit:
To our clients, we are grateful for the support and confidence you place in us and hope you know that translates into doing good for others. For those of you who have been impacted by these disasters, please know we stand with you and are here to support you in any way we can. And if you are interested in supporting the American Red Cross you can do so by visiting:
Yes and No. How’s that for an answer?
In all seriousness, yes, we feel that the risk of identity theft is strong enough that you should make changes. However, you should not make changes solely due to this particular situation. Even if this Equifax breach had not occurred (and for those of you not impacted this time), we would recommend most of these same tactics to help prevent identify theft. There are so many headlines about security breaches each year that it pays to take a few minutes and take action now. Here are a few things you can do:
- Alerts: Most credit cards and banks let you set up alerts. For example, I get immediate text notices when any of these things happen: a) any transaction over $1,000, b) any ATM withdrawal, c) any foreign transaction, and a few others. You can check with each bank/credit card to learn how to set up these alerts and to determine how to customize them as you please.
- Credit Monitoring: You could subscribe to a service that monitors your credit report and alerts you to changes or new requests for credit. You can do this at any of the three major credit agencies (Experian, TransUnion, and Equifax) as well as other firms such as https://www.creditkarma.com/. For this particular Equifax breach, you can sign up for one free year of monitoring services by visiting https://www.equifaxsecurity2017.com/.
- Free Credit Report: The official website to check your credit reports for free is www.annualcreditreport.com. You can check each report once per year. Some people check all three at once. Others retrieve each one every four months so that they check each on a rotating basis. If you notice any errors, you can then report it.
- Passwords: It’s best to have a unique and complex password for each of your financial institutions (e.g., banks, investment accounts). Furthermore, many institutions allow for two-factor authentication where they send you a code via text message after you log in. We would advise you to enroll in this enhanced authentication.
- Opt-Out: You can opt out of prescreened credit card offers by calling 1-888-567-8688 or visiting www.optoutprescreen.com.
- Shred: Shred important documents that have account numbers or other identifiable information instead of just throwing it away.
- Credit Fraud Alert: Placing a fraud alert means that a business is supposed to (but is not required to) verify your information more thoroughly before issuing credit. It is free, and if you place it with one agency, they will report it to the other two. The downside is that there can be a bit more hassle when you truly want to get a credit card, loan, etc.
- Credit Freeze: More severe than the fraud alert, a full credit freeze makes your credit report unavailable and therefore prevents new companies from issuing credit. There will likely be a small charge ($5 to $10, though you can try to get this waived with proof of identity theft), and you must initiate the freeze with each of the three credit agencies. The downside, of course, of the freeze is that it will create difficulty for the legitimate needs of someone to pull your credit (e.g., if you get a new cell phone plan, if you change banks). You will be issued a PIN and would need to contact each agency to lift the freeze. You can learn more about freezes and alerts here – https://www.consumer.ftc.gov/articles/0497-credit-freeze-faqs. Note that even after placing a freeze, your existing lenders and creditors can still access your report, so it’s important to follow some of the other suggestions here as well.
Good luck, and let us know if you have any questions or if you utilize other tools and techniques to help keep the bad guys at bay.
Information contained herein has been obtained from sources considered reliable, but its accuracy and completeness are not guaranteed. It is not intended as the primary basis for financial planning or investment decisions and should not be construed as advice meeting the particular investment needs of any investor. This material has been prepared for information purposes only and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Past performance is no guarantee of future results.