FOG HORN

It’s Friday and time for our weekly shoot the shit topic. This event is made available to all of our readers free of charge because we believe that we are every bit as good as listening to a jackass that studied behavioral “sciences” so they could understand themselves. We want you to make any unsupported comments you see fit, insult anyone you wish, use uncensored profanity or change the subject altogether.

This week, we’d like to talk about the Trump Tax Plan. It’s important for readers to understand the proposed plan because we are being fed all kinds of misinformation by the mainstream media and the Democratic Party.

The proposed plan reduces the marginal tax bracket for business to 15% or 20%, a very substantial reduction from the current 38% – 35%. This applies to C corporations as well as all pass-through entities. Examples of pass-through entities include sole proprietorships, S corporations, master limited partnerships (MLP), limited liability partnerships (LLP) and limited liability companies (LLC). Since many of the companies operating in our industry are pass-through, you should all be very happy about that.

A pass-through entity is allowed customary and extraordinary business deductions; however, their net operating income or loss is treated as personal income, or a loss, to its owners. So, if Muzzle Brakes LLC had $350,000 in net income for the year, that income passes through to Mr. Joe Muzzle Break owner of Muzzle Brakes LLC. Under the proposed plan, his $350,000 business income would be taxed at a 15% or 20%

On the personal side, the plan proposes to double the standard deduction and a reduction in the number of income tax brackets from 7 to 3. The plan keeps charitable contribution deductions and home mortgage interest  deductions. This will put more money in the hands of consumers increasing consumer spending. If you want to know why we had a Q1 GDP of 0.7% all you need to do is look at March’s personal consumption expenditures (PCE) which only increased $5.7 billion (less than 0.1 percent) – annualized it translates to 1.2%. When you consider that consumers account for 60% to 70% of GDP that should be an eye opener.

By limiting deductions on the personal side, it makes the plan very equitable and effectively narrows the gap between marginal tax rates (the published tax bracket) and effective tax rates (what the taxpayer actually pays).  A person making $1,000,000 or more annually will not be able to take advantage of tax deductions that allows them to reduce their effective tax rate. Remember that under current tax law, a person in the 35% marginal tax bracket can use deductions, shelters and other tools to achieve effective tax rates that are significantly lower than the marginal rate.

The Trump Tax Plan hits all of the right notes but it’s going to take time to work its way through the economy, not to mention the fact that when you have a federal tax reduction, states will look at increasing sales taxes, income taxes etc. So, voters need to keep an eye on your state tax initiatives.

If you are a publicly traded corporation, lower taxes means higher executive bonuses, healthier dividend payments to stockholders, higher earnings per share and a higher stock price. Regrettably, although this is all good, it does nothing for jobs. The demand side of the economy needs a big catalyst.

What we would like to see is  business investing in plant and equipment (capital investments) is allowed to be deducted, dollar for dollar,  against current period income, for a 3 year period. For example:

If you make rifle actions, you will have a three year window during which you can purchase new CNC machines and deduct the full cost of those new machines against current period income. Currently, capital investments are capitalized – this means you can only write off a portion of the investment year over year until fully depreciated. This alone will spur business investing and ignite the supply chain. Suppliers will see increase demand and add to their labor force.

In closing, the best advice we can give you is, don’t pay a lot of attention to media comments they’re largely misinformation and an abundance of manure.

Also on our wish list is a national lottery with proceeds earmarked for infrastructure and national debt reduction. Increasing the gas tax is in our view the wrong strategy. Time to start thinking out of the box and get the job done!

Have a safe weekend, try to get some range time in, or spend quality time with your buds and family!