He was paying $10,000 a year LESS than just about everyone else I knew for healthcare coverage. I wasn't really sure what a "healthcare sharing plan" was, but if it was doing what I understood it to be doing, I knew it was really inexpensive.
To set up this story, I need to tell you how this topic came to my attention in the first place.
A few months ago, a fellow came through the door looking for help in designing a financial plan. He's a good guy....married, two kids, and a business he started a number of years ago. He's making good money....and like a lot of entrepreneurs, he's concerned that it won't last forever.
"The power to tax involves the power to destroy."
- Chief Justice John Marshall
Benjamin Franklin is one of my favorite "founding fathers." Most people know him as a famous inventor, diplomat, and key contributor to the writing of America's Declaration of Independence. What fewer people know or think about is that Mr. Franklin wasn't always the fascinating man that history now paints him to be. More to he point, he knew it. Because of that fact, at the age of twenty, young Mr. Franklin identified thirteen traits that he felt made one a virtuous man and he then created a system to develop those traits within himself. We are glad he did, because without him, who knows where we'd be today.
"The U.S. Senate is considering a bill that would tax Botox. When Botox users heard this, they were horrified. Well, I think they were horrified. It's difficult to tell."
- Craig Ferguson
By a vote of 227 - 203 in the House and 51 - 48 in the Senate, the Republicans have just passed the most significant new tax legislation in 20-30 years. Before jumping into the details of the new tax plan, I want to ask that everyone reading this first ask the "why" question. Why is the administration doing this at all? The answer is "to lower corporate tax rates" in the hope of creating more jobs and generating more corporate tax revenue. You have to recognize that the highest marginal corporate tax rate in America, practically speaking anyway, is 35%. That is the 4th highest rate in the world (the highest being 55% in the United Arab Emirates). Now, just because we have such a high marginal tax rate does NOT mean that every corporation in America is paying taxes at the level. What is the AVERAGE tax rate of American corporations? According to the Tax Foundation, that rate is 24.71%. A tax rate of ~25% doesn't sound nearly that bad until you realize that the average corporate tax rate in Europe is 18.7%. That 6-point difference in taxes means that American corporations are paying 31% MORE in corporate income taxes than their European counterparts. In China, if you're a technology company, the difference is even greater.
Think about it this way: If you can imagine yourself bypassing your local grocery story and going to Walmart or Target for an item that is 25% less, then you can appreciate the conundrum that corporate CEOs face when managing the relatively uncompetitive "price" of their corporate income tax liability. Few of us are willing to pay more than the lowest price we can find....and none of us want to pay more than a competitive price. US corporate tax rates have been less than competitive for years now.
According to a 2015 Forbes article, corporations have nearly $2.1 trillion in accumulated profits sitting off-shore to avoid US corporate taxes. What the Trump administration is trying to do is to lower the corporate tax rate to create an incentive for those corporations to bring that money back to the US. The administration's view is that it's better to get a lower percentage of something vs. a higher percentage of nothing...in terms of tax revenue. As a result, the new tax plan lowers corporate income tax rates from 35% to 21%. To me, this makes all kinds of sense.
Ok, so what about personal income taxes. Why all the changes here? To make a long story short, the changes in personal taxes are simply the result of the negotiations that made the changes to the corporate rates possible.
What follows is a summary of the big issues as I see them from both a personal and business perspective.
Imagine it’s you and 101 others crammed into 1,632 square feet of living space. For 66 days in the North Atlantic Ocean. No air. No heat. Oh God…no bathrooms.
Welcome to the Mayflower. It's the year 1620.
Entrepreneur, financial guy, husband and father of two great kids.