Investors Seek Clarity on Tax Reform

Ladies and Gentlemen, the market is on edge, and for good reason! The Republican members of Congress have circulated a detailed list of legislative policy options, including tax proposals, and investors are still looking for 'clarity' on tax reform. The stakes are high, and the potential impacts on your portfolio are enormous. Let's dive in and break down what you need to know!

SALT Deduction: The Biggest Question Mark

The $10,000 cap on the deductibility of state and local tax (SALT) from federal taxable income for most non-corporate taxpayers is set to expire at the end of the year. The list includes several alternative proposals for SALT deductibility going forward. Here are the options:

- Repeal SALT Deduction: This would raise $1 trillion over ten years. If this happens, your taxable income will increase, and so will your federal tax liability. This could lead to a decrease in investments in state and local bonds or other tax-advantaged investments. DO NOT IGNORE THIS!

- Make $10,000 SALT Cap Permanent but Double for Married Couples: This would cost $100-200 billion over 10 years. This proposal could provide some relief for married couples, but it's still a significant increase in tax liability for many individuals. BE PREPARED!

- $15,000/$30,000 SALT Cap: This would cost $500 billion over 10 years. This proposal could provide some relief for individuals and married couples, but it's still a significant increase in tax liability for many taxpayers. STAY ALERT!

- Eliminate Income/Sales Tax Deduction Portion of SALT: Only property taxes would be eligible for the SALT deduction, and the deduction would not be capped. This proposal would cost $300 billion over 10 years. This could lead to a decrease in investments in the housing market, as homeowners might be less likely to invest in home improvements or renovations due to the increased cost of homeownership. BE CAREFUL!

- Eliminate Business SALT Deduction: This policy option would eliminate the SALT deduction for business filers only, while maintaining the TCJA deduction cap for individuals. It would raise $310 billion over 10 years. This could lead to a decrease in business investments, as companies might prioritize paying higher taxes over reinvesting in their operations or expanding their businesses. DO NOT MISS THIS!

Mortgage Interest Deduction: Another Wild Card

The TCJA lowered the amount on which homeowners may deduct home mortgage interest to the first $750,000 ($375,000 if married filing separately) of indebtedness. One proposal would repeal the deduction on primary residences, which would raise $1.0 trillion over 10 years. Another proposal would lower the cap on the deduction to the first $500,000 of indebtedness. This proposal would raise $50 billion over 10 years. Both savings estimates are Tax Foundation scores. DO NOT IGNORE THIS!

Corporate Tax Rate Reductions: A Game Changer?

The current corporate income tax rate is 21%. The list posits reductions in the rate to either 15% (at a cost of $522 billion over 10 years) or 20% (at a cost of $73 billion over 10 years). These reductions are aimed at encouraging businesses to reinvest profits and stimulate economic growth. DO NOT MISS THIS!



Repeal of the Corporate Alternative Minimum Tax: A Boon for Big Business?

The Inflation Reduction Act of 2022 imposed a 15% corporate alternative minimum tax (CAMT) on the adjusted financial statement of certain very large corporations. One proposal would repeal the CAMT, at a cost of $222 billion over 10 years. This repeal could provide additional financial flexibility for large corporations, potentially leading to increased investment in research and development, capital expenditures, and other growth-oriented activities. DO NOT IGNORE THIS!

Green Energy Tax Credits: A Contentious Issue

The IRA enacted various “green” tax credits, including for clean vehicles, clean energy, efficient building and home energy, carbon sequestration, sustainable aviation fuels, environmental justice and biofuel. These tax credits are proposed to be repealed. The repeal would save up to $796 billion over 10 years. This could lead to a decrease in investments in green energy, as companies might prioritize paying higher taxes over reinvesting in their operations or expanding their businesses. DO NOT MISS THIS!

The Bottom Line

Investors are still looking for 'clarity' on tax reform, and for good reason! The potential impacts on your portfolio are enormous. Stay alert, stay informed, and stay ahead of the curve. The market hates uncertainty, and so do you! DO NOT IGNORE THIS!