Starting the New Year
Starting the new year off right, well, 2018 is in the past, and we now must look to 2019 for the future. Let us take a minute to look at what has happened in the previous year and what we might expect in the coming one. And yes 2018 was a wild ride indeed and one I personally am glad to see the end as far as financially. With the start of the new tax bill, to all-time highs in the market, then watching the markets implode, the start of trade wars and a total of three government shutdowns. Yes, 2018 was a wild ride indeed and one we will take a brief look at in this post.
Two thousand eighteen did indeed start with a big bang of sorts. This was the start of the new tax law that I have written about on a few occasions. Yes, it was touted as a tax cut, but in reality, I found it to be a bit more like a wild west smoke and mirror act. I was skeptical about these cuts from the beginning as the individual tax rate was unchanged from the previous law. While it did lower the corporate tax rate by a wide margin, I think it would have made more sense to lower it a little less but close all of the loopholes that corporations all benefit from. After all, what is the point of saying corporations pay 35% in taxes when in reality the average corporate tax rate was less than 20%? So with the loopholes in place still the new corporate tax rates will be very interesting indeed to examine.
And then there are the individual income tax breaks that were shouted about from Congress. A few brief examples of how this worked for me and one person who I do their taxes. As for my personal experience yes my paycheck did increase about $50, which is what I was told would happen with the passage of the bill. Then I examined what my taxes would be off of the projection of my withholdings. Okay, here is the key point here, my paycheck did increase by $50 but they were not withholding enough money from my check, and I was projected to owe about $2,000 when it came time to file my taxes. Okay, that is where the smoke and mirrors come into play, I got $1,300 more a year in pay but owed $700 more in the end for the outlay of $2,000 at tax time. Then I did a return for a self-employed individual, and I projected their 2018 tax liability for them as I do all my clients. Now their Adjusted Gross Income was a little below $34,000 a year, and their tax liability was $1,900, but their 2018 was projected to be $2,100 or an increase of $200. More smoke and mirrors.
With the passage of the tax bill the markets took off like a rocket due to the savings of the corporations and these savings were incorporated into their earnings. But as with most tax cuts and loopholes that corporations take advantage of the savings were not necessarily passed on to employees or even into the general economy with capital spending. No, the corporations did what they always tend to do, and that increases dividends and perform stock buybacks to increase shareholder’s wealth. A far cry from what Congress said and blindly thought would happen. Then for the remainder of 2018 stocks we basically in a steady decline from January’s highs until late in the year when they went into an absolute freefall and ended the year down into what could almost be considered bear territory.’
Trade issues on world economy
Then we have the trade issues that are weighing on the world economy. Trade wars are never a good thing and almost always end poorly for the countries involved in them. Here we had a trade deal with 11 other nations that would have opened up a vast market to US-based products, but the current administration pulled the US out of the pact. Then it started an outright trade war with China that is a one-sided affair because the administration believes it can have a one-sided deal that only benefits the US. While that may sound good and look appealing to us, no country will enter into any trade deal with us that only benefits the US. It simply makes no sense for them to do so and we have now lost any partial advantages that we could have enjoyed in a multi-nation pact that benefited all countries. The US is not a private company that can ignore the wishes and needs of its allies and trading partners in favor of bilateral trade deals that will not materialize no matter how much this administration wants them.
Finish out the dysfunction that was 2018
And to finish out the dysfunction that was 2018, there were three government shutdowns that occurred when the same party held both houses of Congress and the Presidency. And the third has last over a week now with no real end in sight. Using the federal worker and the services they provide this nation as political pawns are not the way to govern this great nation. Like the bilateral trade deals wanted by this administration, it thinks it can force bilateral funding bills through Congress. And like the trade deals that need to benefit both countries funding bills are an art form and must benefit all parties and parts of the government.
Let us hope that 2019 is better both in the markets, for our pocketbooks and that the government wakes up and sees that dysfunction is no way for the greatest country in the world to govern. If we cannot govern within our borders how can we be the leader of the free world and the most dominant economy in the world? So, here is to the bigger and better 2019!
