David Scranton: Donald Trump's long-awaited tax bill passed the house with a small hiccup on Tuesday, December nineteenth and then went on to the Senate on Wednesday, December twentieth. It's the biggest tax overhaul in thirty years and President Trump has called it a big beautiful Christmas present for American taxpayers, although it's mostly not going to be officially signed until January third. How will the bills change affect you and when? These questions are especially important if you're actively saving for retirement, which is why we're going to be tackling them right here on today's show. So, it is time once again to tune out the hype and focus on the facts, facts that matter to you the income generation. Let's get started, get ready to separate reality from myth.
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Hello everyone and welcome to the Income Generation. I am David Scranton, your host. When we first devoted a whole show to the Trump administrations proposed tax bill earlier this year, it was still just that proposed, and soon it will be signed into law even though it still has many critics. Here's how both sides of the argument play out. Critics claim that the plan benefits primarily the super wealthy at the expense of the poor and the middle class, they're skeptical that Republicans can pay for it through economic growth and without adding to the already mushrooming federal deficit. Supporters however, point to record high levels, record high levels in consumer confidence, stock market highs that began right after the election last November. And continuing over the last year and most recently tally growth of just close to three percent G.D.P. over the last few months, along with solid job reports all indicating the Trump supporters that this concept of paying for it with growth may just not be a total pipe dream after all. So the question becomes, which should you believe? We'll look at these issues and more on today's show with a special focus on how the tax plan could impact you? Working Americans, part of the income generation born before one thousand nine hundred and sixty-six, those who are retired or within fifteen years of retirement. So joining us once again to break it all down is one of the country's leading tax experts on taxes and tax policy, of course, you already know. Because you just saw the picture, who's our guest today but if you're a regular viewer or even if you were on the show last week you would know. Why? Because last week I told you that our guest today is none other than Mr. Steve Forbes, but if you're a regular viewer you also know because it's the only show, it's the only guest for whom I actually wear a necktie. And frankly, it's not because he's so famous or anything like that, it's because he's such a nice guy and he got me this tie as a gift. And I'm kind of a.. kind of sort of a sentimental fellow, so during the show today we're also going to be sharing a short preview of my upcoming two thousand and eight hundred market forecast show. Airing next week on New Year's Eve, but first, let's take a look at some of the key features of our new tax laws and guidelines and what they could both mean for you. Both this tax season and beyond and yes, just in time for Christmas Republicans passed a massive tax reform touting it as a gift to taxpayers and to economic growth. That sounds great but when can you expect to see and feel the real effects of this gift, to be clear it certainly won't be as soon as Christmas morning. The good news is, there are finally a few other certainties though that we can discuss now that this tax plan is soon to be signed into law. And at the same time, there are a lot of lingering questions and unknowns and we'll get into those also a little bit later in the show. But first, let's focus on the answering of some of the questions that now been answered over just the last few weeks. So, first of all, when will the new tax law start to take effect? For most, the earliest might be February of two thousand and eighteen. If you're currently working the most noticeable change may be to your take-home pay, with lower tax rates employers will take a bit less money out of workers' paychecks. Which means an increase in your take-home pay probably around February, takes them a month or so to make their adjustments. Other impacts, however, won't start until you're working on your two thousand and eighteen taxes which is going to be close to April, two thousand and nineteen. As you know two thousand and seventeen is really unaffected, it's based upon the old tax rules, so when you do your tax planning with your C.P.A. before April of next year two thousand and eighteen nothing has really changed. One exception though that you're going to see that affects people immediately is that individuals without health insurance will not have to pay the Obamacare penalty this year for not being covered. That change does go into effect as I mentioned immediately as the individual mandate has been repealed. That's one aspect of Obamacare that president was able to complete his promise to the Americans about getting rid of that mandate. Unfortunately, of course, you're watching the news earlier this year you're aware that the full repeal of Obamacare did not happen. And unfortunately, that was not able to get through Congress, now on the other hand, when you get to see him talk to Steve about this a little bit and he asked his opinion. He may find that what's really happened is kind of a backdoor way to kind of sort of unravel Obamacare. So, we'll have that conversation in just a bit, now here's some good news. We have all new tax brackets that should provide tax relief for many Americans. So, what are the new brackets, well the new law maintains seven individual brackets, at slightly different rates. So the old fifteen, ten to fifteen percent bracket is really now become the ten and twelve percent bracket. The old twenty-five percent bracket were many, many American sat has now become the twenty-two and twenty-four percent. All of the higher brackets have now been compressed somewhat into the thirty-two, thirty-five and thirty-seven percent brackets. And yes this is different from the four bracket system that President Trump originally proposed. Our guest Steve Forbes, will give us some more insight into that change in just a minute. So how about the standard deduction? Well, it's essentially doubling from sixty-three hundred and fifty dollars to twelve thousand dollars for individuals. And from twelve thousand seven hundred to twenty-four thousand for married couples finally, jointly. And that is a change that will have some impact on taxpayer decisions about whether to itemize or not. Unfortunately, because they're also getting rid of the personal exemptions that increased benefit might not be as big of a deal as many people think on the surface. Now, how about state and local taxes what's the story with those? Are those still deductible? Well, the answer is yes sort of, why? Because there are new limits, filers can deduct up to ten thousand dollars in state and local taxes. And also you kind of have to choose now whether it's state-local income taxes or property taxes or sales tax. That's an important change from earlier drafts of the plan which called for a complete repeal of state and local deductions. How are homeowners going to be affected? Well, with the exception of the property tax limits, mortgage interest deductions do not change for homeowners with existing mortgages. However, if you're going to be buying a house under the new tax law that's starting January, first two thousand and eighteen. The most that you can deduct in terms of interest on mortgage debt is now seven hundred and fifty thousand dollars. Whereas, in the past it was one million dollars. How about charitable donations? Well, fortunately those deductions for charitable donations has not change under the new tax law, that means that if you itemize you may still be able to deduct charitable donations made to qualifying organizations. In fact, up to a limit of fifty percent of your adjusted gross income for most income taxpayers and finally. If I had a drum set here, I'd do a drum roll. Actually, I wouldn't because I don't know how to play the drums. The question becomes what kind of tax break are businesses getting? Well the new law slashes the corporate tax rate from thirty five percent to twenty one percent, that's one percent higher than the twenty percent originally proposed. But it's still an enormous tax cut for businesses, in addition, the tax burden has been lowered for pass-through for businesses. That affects owners of es-corporations, LLC's partnerships who take their income in the form of profit distribution rather than salary. That's known as pass-through income and is taxed currently at personal income tax rates, under the new law, however, you'll be able to deduct the first twenty percent of that pass through income as being tax-free. Now that doesn't apply to certain personal service organizations, doctors, lawyers and the such… whose incomes over a certain threshold. Additionally, employers are going to be able to eliminate expenditures and be able to instead of amortizing write-offs over the course of so many years when they buy new capital equipment. Their actually going be able to a one hundred percent upfront expensing of some capital equipment as opposed to depreciation. Theoretically at least that should provide incentives for business owners to invest more capital equipment and therefore stimulate the economy. So, theoretically at least, in terms of the big picture where you realize or not these last items that affect businesses are supposed to be the most important parts of the tax plan. Why? Because what they do is they, first of all their really the secret sauce in President Trump's entire plan. It's what supporters maintain will allow the plan to pay for itself through economic growth, because businesses large and small will be paying a lower percentage in taxes. That smaller percentage will presumably be paid on a massively higher amount of corporate profits. Which will ultimately mean an increase in government revenue with less burden on individual taxpayers. Now we've already seen some G.D.P. growth this year, due to a lot of the deregulation that President Trump has been able to do after the Obama administration. So, the increase in regulations that have come into play have now been reversed and that alone is part of the G.D.P. growth we've seen as of late. And it's obvious, that Wall Street's pretty optimistic that the new tax rates going to increase the momentum and deliver that type of sustained G.D.P. growth that president Trump claims it well. In fact, a week ago on the eve of the tax plans final approval, the stock market hit yet another all-time high. Now regular viewers know that I've discussed a lot about the relationship between the stock market and the Trump tax plan. Pointing out that market performance since his election has been driven largely by optimism about that plan. That means not only optimism that the plane will be approved, but that would also be able to deliver the kind of long-term economic growth that the president says it will. Enough growth to finally give the overinflated markets fundamental support, the question becomes will it happen? And moreover what are the potential consequences if it doesn't? We'll talk more about that later in the show. But right now let's get on with some insights on the new tax laws and what they mean for you from one of the nation's leading sources of the subject and one of our favorite guests, Steve Forbes. Steve is the editor and chief of Forbes magazine and a leading authority on business, the economy and yes especially taxes. He's the author of several books including Reviving America, how repealing Obamacare replacing the tax code and reforming the Fed will restore hope and prosperity. Steve has been with us several times now including two on the previous shows that we've had about the tax plan. So Steve, welcome.
Steve Forbes: Good to be back, thank you, David.
David Scranton: Now, we have to... Can we make some arrangements here, please? In terms of you know an agreement we have between us, please for the show. Can you make an arrangement here? See, I have to tell you a secret.
Steve Forbes: Well, you pay me so much and with this new tax plan I don't have to pay income tax on it. So, yeah we can cut a deal.
David Scranton: That was exactly what I was thinking about but always the quintessential businessman that's what I love about you. Now, you see I have to confess, we're recording the show couple days before and as a result, you know I have to confess. I haven't reviewed the entire tax plan so you have to do me a favor and not say anything that makes me look silly or foolish about the tax plan, is that fair? Can you do that for me?
Steve Forbes: Yes, and I'm surprised a man of your ability couldn't read through six hundred pages of gibberish and to comprehend what they've slipped in, yes months, tax lawyers. Well, a tax lawyer told me the other day he said they were all going back to school, a whole new set of things are going to have to learn.
David Scranton: This is going to be a weekend read for me, that's for sure now, on the other hand, you know if you want to call me to the carpet because maybe I have a wild eyebrow or something like that that's showing up on the camera that's okay. But not the taxes, fair enough?
Steve Forbes: Yep and...
David Scranton: We have to take a quick commercial break and then we come...
Steve Forbes: How many members of Congress have read it?
David Scranton: Zero.
Steve Forbes: Zero.
David Scranton: My goodness can you believe that wow. Stay with us we'll be back with our interview with Steve Forbes. As we've discussed many times in the show and earlier today, the stock market's been riding high ever since President Trump's inauguration. In fact, over seventy record-setting days in the markets this year, first on the shaky promise of the repeal of Obamacare. Which of course, didn't work out and then more recently the markets have been riding high with the anticipation of President Trump's tax reform plan. Which to both critics and supporters alike, looks like it will indeed become the first legislative promise that President Trump has been able to be one hundred percent successful and delivering to the American people. But once it is signed into law the question becomes, what then needs to happen next in order to sustain the overvalued equity market? Or should you alternatively begin to think about what your next move should be if there is a substantial correction in two thousand and eighteen? I guess ultimately it depends upon which side of the fence that you sit on. The answer according to some is pretty much just what President Trumps Council of Economic Advisors predicted will happen in the October report. They said that the corporate tax cut along with the immediate expensing of capital investments will boost long-term G.D.P. growth by between three and five percent. Or I should say really up to three and five percent, they predicted those effects could kick in as quickly as three to five years. Adding that there will be additional G.D.P. effects from reforms to individual income and passed through business taxes. Which we have not yet modeled as well as growth from regulatory reform, as well as an infrastructure package. Along with this report C E A chairman, Kevin Hassett said that at the time he was optimistic the corporate tax cuts would generate enough growth to pay for all the tax cuts proposed within the plan. And now that the plan is going to be the law, of course, we'll have to see but a lot of economists aren't as optimistic as Wall Street or the Trump administration. The nonpartisan Congressional Budget Office estimates that the tax plan will indeed increase federal deficits by as much as one point seven trillion dollars over the next ten years. A more comprehensive two thousand and fourteen study by the Brookings Institution found that tax reforms a net impact on G.D.P. growth in general, are either always small or slightly negative. Other economists have pointed out that with the economy already improving, massive tax cuts designed to turbo charge that growth could actually backfire. As Federal Reserve Bank President, William Dudley put it, "I'm not in favor of tax stimulus at the current time because the economy doesn't really need it". But the secret that many politicians and corporate heads understand is that many ways the economy or at least the stock market, really does need it in order to again try to give the market actual fundamental support based upon today's actual values and market prices. Again ever since the election the markets have been growing and have been outpacing actual economic growth by a pretty significant margin. The markets have soared by over twenty percent in the past year, while G.D.P. growth is on a pace to just about maybe three percent or so annualized over the last two quarters. That's certainly an improvement over one point six percent for all of two thousand and sixteen. But it's hardly enough to justify record high stock market levels, in fact, that's why the economy actually does need turbocharging in some ways or a shot of rocket fuel as President Trump has called his tax plan. It's needed in order to actually improve corporate profits and get them to finally catch up to these overvalued stock prices. It's also true because the stock market hasn't made fundamental sense if you think about it basically for the last ten years that's when the Federal Reserve begin its own turbocharging efforts with quantitative easing and all these other radical forms. Many of them untested previously, radical forms of artificial stimulus the markets have basically been addicted to this artificial stimulus and artificial factors ever since, over the last decade or so. Investors have enjoyed some impressive looking growth throughout this addiction period for sure, but what you may or may not realize is that the actual average return. That many stock market investors have had buy and hold since the turn of the century hasn't been any greater than many fixed-income investors. So how is that possible? Well, it's possible because total return as you know is a sum of not just growth but really growth plus income. Investors focusing on the ladder instead of the former that is income instead of growth have less risk of a major loss that could significantly impact their average return over time. In fact, over the last seventeen years, we have a perfect example playing out. Since two thousand the stock market has risen some sixty percent. But it's also experienced two major drops in the middle, one during the bursting of the tech bubble and the other during the financial crisis. And because of that buy and hold investors during that time have achieved an average of only about three percent annualized growth. When you throw in dividends it's an average total return of about five percent per year, by comparison, many income based... Fixed income-based investors whose portfolios have been properly managed have been able to achieve that five percent or more in just income. And when you're factoring growth many of them have actually outperform their stock market counterparts and they've done it with far less risk of a major loss during those two major market drops. And without the continued risk of a third major stock market drop, which brings us back to our topic today. Which is President Trump's corporate tax cuts, it's certainly possible yes, that they will have exactly the desired effect and add rocket fuel to a fire that's already flickering. With apparently a lot of promise or so the stock market says and it's possible that for the coming year the markets will respond by hovering at their current peaks. And maybe even go higher, but remember this about rocket fuel it burns fast and hot and then it ultimately burns out. Remember too, that eventually one way or another the financial markets have to make fundamental mathematical sense once again. You have to align with economic realities. So, coming up in just a bit we're going to talk more about my stock market tease for next year as I've teased up last week for you. But right now, let's get back to talking to my good friend and tax authority Steve Forbes, about the Trump administration's newly approved tax cuts and jobs act. So, Steve you know you wrote a paper recently entitled, How Republicans forgot tax cutting one on one.
Steve Forbes: Yes and a couple of major ways, one is what economists call marginal tax rates. That is the tax rate you pay on the next additional dollar of income that really stimulates or affects behavior. Whether you invest, whether you spend and not just your average rate. But what it's going to do if you earn an extra five or ten thousand. You have to pay it all over to the government you're not going to bother to earn it, Republicans forgot that near the end of this hideous tax process they began to remember it. So they met on the personal side they started to make some cuts, not big ones but start to move it in the right direction. And it's on the business side that they really got it right, reducing as you pointed out thirty-five to twenty-one past through as they made hopelessly complicated. But it looks like they have knocked ten points off of that from thirty-nine point six to twenty-nine point six, we'll see how it actually shakes out. But it's a good cut if that holds through so, on the investment side it's critical. We've had as you know sub-par investment for a decade and so in order to get a higher standard of living we need more investment. And that leads not just enabling people to keep more of what they earn now but have higher earnings, higher salaries, higher pay in the future. And you have to have investment so they are laying the foundations for good long-term growth from the business side. And one of the things they should emphasize David, in the New Year this tax bill is a down payment of more tax cuts to come. Get the animal spirits really going, we're going to have more of this good stuff, we're going to do more for individuals and that way not only will you have good things here. But overseas, capital will be coming in.
David Scranton: Right, now animal spirits, of course, are going in the stock market right now it seem to be going. But the question becomes really do you think that being able to take one hundred percent deduction up front, not have to take depreciation over the life expectancy of an asset. How much is that really going to help stimulate the economy? You know President Obama did that for a short period of time and it really didn't seem to do much back during the financial crisis. Is it that now it seems to be locked in for five years, so now businesses can plan? Do you think it will make a difference?
Steve Forbes: With President Obama, if he gave you something you know he had taken it away at the first opportunity. And each day that administration was getting up and trying to figure out how to make life miserable for business people. This is a different environment, different psychology and for smaller businesses being able to write off the truck, the software on the like that makes a difference. Big companies not so much, but for smaller companies which have had a really tough time in the last decade, this is really manner from heaven.
David Scranton: Well, I think what you're saying is finally now business owners large and small can't have the confidence which they didn't have during the Obama administration. The confidence to make good long-term business decisions and take advantage of those tax breaks, so we're taking a break right now stay with us we'll be back with more from my friend and tax expert Steve Forbes. Welcome back, I'm here with my friend and tax expert Steve Forbes. Now, I know what you're talking about with the marginal tax concept and what you're basically saying is it provides a disincentive for people to work and grow. Because they think well gosh if I get pushed into the next tax bracket maybe it's not worth all the effort and I've heard that many times from people. Even from financial advisors who don't want to grow their practices much because they're worried about that as strange as that may seem. But, and I know you're a big proponent with flat tax but come on, did you really think in today's political environment that we'd be able to get a flat tax or anything that resembles that through Congress.
Steve Forbes: The only way you're going to get a flat tax in forty countries and jurisdictions around the world in recent years have put it in and it's worked very well everywhere it's been tried. Is if it's pushed by the president, President Trump indicated a little over a year ago that when he gets this tax bill through which has now happened. He's going to be open to a big radical change like a flat tax in the next two or three years. Remember, Ronald Reagan had a big tax cut in nineteen hundred eighty-one and then five years later they cleaned the code of a lot of tax shelters and the like. Cut the top rate from fifty percent down to twenty-eight percent, passed the Senate in nineteen seventy-three. So I'm hoping that we're going to really do the big job in the next few years, I think this president wants to make a mark on history. Isn't shy about it and so I think he'll be more open to it than Congress. What happened in the last few days before this bill was finally approved is the Senate side woke up to the importance of lowering those tax brackets. And so they... Even though they have seven brackets instead of (unclear 25:13) four that the house originally had. Those seven are better for individuals, people making two hundred, three hundred thousand dollars a year their marginal tax rates went down. So, for the most part, they started to move in the right direction, so they began to understand it which is progress in this world.
David Scranton: So you really do believe that this is a first step in this? There should be more tax reform coming in and I hope you're right. The thing that worries me...
Steve Forbes: One of the things is don't call it tax reform that does say anything to people. Call it a tax cuts you notice Trump finding the Congress stated take upon it, he says tax cuts, tax reform. He gets it, people understand cuts, reform? What are you talking about?
David Scranton: Why sugarcoat it, it doesn't help. And I hope you're right, I just hope that you know he actually runs for reelection and with all the pushback from the Democrats, you know he may just be too smart of a fellow to say you know what. One and done, I've had enough so hopefully, you're right but.
Steve Forbes: Well, but if he decides to run for re-election just as on aside the Democrats have to run somebody against him. And that makes this whole calculus very different, it's one thing to say well, I really don't like that guy. But who are they putting up?
David Scranton: Right, that's right, that's right. That's great and you know you and I both agree that the biggest impact here is going to be for businesses and that's huge. Whether it's public traded companies that go from thirty-five percent to twenty-one, which by the way if it goes from thirty-five percent to twenty-one percent marginal brackets. The corporation that means your net profits can increase by as much as twenty-two percent which by the way probably justifies the twenty-two percent growth we've seen in the stock market since Election Day.
Steve Forbes: You know the market was anticipating this, if this bill had faltered you'd have seen several thousand points go off overnight.
David Scranton: I absolutely... Now, that's business we all agree that's great so now how about forgetting trickle down for a minute and everything. Let's just talk about individuals, which part of that segment is best going to benefit from this? Is it more low-income individuals, high-income individuals? Is it the middle and who's going to benefit the least in your opinion?
Steve Forbes: Well, lower and middle-income earners do get some cuts in their tax rates. They may benefit from this doubling of the personal exemption, all the Republicans typically made it more complicated than they need have done so. But if you start to earn more money they've, did widen the thresholds, the brackets and so that's pretty good. But the real people who generate capital for investment, especially if you live in a blue state initially you are going to take a real hit. And one of the things they should have considered was phasing in the phase-out or phasing out the state and local deductions. So that would put pressure on states to lower their rates, give them time to do it.
David Scranton: Give them time. Sure.
Steve Forbes: And people to adjust to it but they're okay. So they did it overnight, so those folks capital creation is not going to be on the individual side as robust as it would have been. But that again, is why they should say this is just the beginning. We're going to take another whack at it and on the so-called pass trough's which you're familiar with, I'm familiar with. What they should have done, I hope they do next time is just lower the top bracket from thirty-nine... thirty, now thirty-seven percent lower to twenty-five percent. So you don't get in, are you a personal business? Are you this? Are you that? Are you doing this? Are you doing that? Which is a tax lawyer bonanza I have nothing against tax lawyers but I think the less work they have the better off we are?
David Scranton: Well kind of sort of treat it like the corporate brackets themselves and make it simple is what you're saying.
Steve Forbes: Yeah.
David Scranton: It makes sense, so it's interesting because I believe you know that retirees, unfortunately, could have benefited more. But they didn't because that three point eight percent Obamacare tax that we're hoping to repeal didn't get repealed. So that's unfortunate, but it seems to me as though the lowest income earners could benefit because that fifteen percent. Ten and fifteen got dropped to ten and twelve and the highest income earners could benefit because the thirty-nine point six got dropped to thirty-seven. It seems to me there's a bracket in the middle roughly four to five hundred, four to six hundred that might go from twenty-eight up to thirty-two. That might be quite as clean, have you have thought about that at all, or?
Steve Forbes: There is a small point between talking about couples, between four hundred thousand and I think it was four hundred and eighteen thousand. Don't hold me to it but where you're marginal bracket actually went up a little bit. But thanks to the senators finally realizing about marginal tax rates which Ronald Reagan understood, Jack Kemp understood, Calvin Coolidge understood, John Kennedy understood. They did reduce some of those rates, which the House did not understand so a bill that could have been a real disaster on the personal side. Could have been better, but does not do real harm and the harm that it does do I think will be a real impetus. Let's clean it up next time.
David Scranton: Certainly. Well you know you give me, the one thing that I love about our conversation today amongst many but the one thing is that I guess I hadn't thought about this as a stepping stone quite as much. And you got me to think about the stepping stone factor and as the popularity grows the ability to do other things.
Steve Forbes: One of the things that was amazing they didn't do this time is they didn't reduce the capital gains levy which you made reference to. Because that instantly means more revenue, every time you've reduced the rate and when it also incentivize you to invest more.
David Scranton: Tell our viewers though about why a capital gains tax cut is not just a tax cut for the wealthy like the Democrats like to believe.
Steve Forbes: Well everyone has a four o one K. Or some kind of retirement plan and when you reduce the capital gains levy that gives a real firm basis to an increase. Increasing the assets of your four o one K or IRA or Roth IRA and also gives people more incentive to invest to create the new products, new services and the jobs that have higher income. So you just don't keep more of what you're currently earning but your pay starts to go up in a meaningful way. So you get a good double bang, you keep more of what you earn but you're going to be earning more. So you have lower taxes on the higher earnings, that's better for everybody and every time we reduce the capital gains tax levy the economy has benefit from it, there's been more investment. And the government gets more money, so it's win, win it's good for the economy and you have instant revenue for the government so you don't get caught up. We need pay force for these tax cuts which is crazy anyway, so it's good. It's good David that we get away from this thing and get a real capital gains tax cut and not let the Democrats define the terms of debate.
David Scranton: Well and not only that but as you wrote about in your paper you said and I thought this is a profound was that you know by getting a tax cut today, people take advantage of that and sell capital assets and realize the gain. So we get more tax revenue today until government coffers which can actually then make it somewhat revenue positive upfront for the government. So now they could take that extra money and use it to be able to do other tax cuts for your average American.
Steve Forbes: In the early eighty's when we cut the rate from twenty to fifteen CBO another said it would have about two hundred billion dollars of revenue in the next few years. Revenue came in at over three hundred and fifty billion, they always underestimate the immediate revenue that comes in. So next time, I hope they get that one right.
David Scranton: So it's funny because, in your paper, you implied that the Democrats kind of sort of cut... the Republicans kind of sort of kowtow to the Democrats, but in reality what you're saying is that if they're coming across. Coming back again to get a second bite of the apple, it could very well be the old verbiage of being dumb as a fox. And so, I hope you're right hang with us for just a few more minutes, please when we come back we'll have some fun here. I'm going to put Steve on the spot and ask him about what he thinks the economic forecast is likely to be for two thousand and eighteen? And then we're also going to talk about some of the comments that maybe he's heard on some other news shows that he's been on. Maybe some of those stations that are a little bit more liberal than Newsmax, we'll be right back stay with us. If you're near or in retirement head over to the income generation dot com and download your special report written specifically for the needs of the income generation. Again, those born before one thousand nine hundred and sixty-six. I'm David Scranton and you've been watching the Income Generation, we'll see you all next Sunday. Alright, welcome back, let's talk more taxes. Steve, you know we have talked off camera just a little bit about how in some ways the doubling of the standard deductions a little bit of smoke and mirrors. Because they also get rid of the personal exemptions, so some families might end up a little bit ahead and some families might end up a little bit behind. But perhaps the biggest effect that is going to affect family especially in states like where we are, right? You live in New Jersey, I live part-time in Connecticut. I've business interests in Connecticut the only thing that could be worse from a tax perspective perhaps if we lived in California, right? So you know how is it going to affect those states you know there was no Faison. The states didn't have a chance to prepare you know I'm concerned about not a mass exodus, but I'm concerned about people saying you know if I can't deduct all of these property taxes or state and local income taxes on my federal return. I have to pay that much more then I'm leaving. Are you concerned about that too?
Steve Forbes: Yeah, it's going to have an impact on property taxes, which will impact a property tax revenue in those states. Some people are going to make the move, you live in New Jersey for example, even if you go to Pennsylvania. Your top rate will go from nine percent to three plus percent. So, well you're going to see movement from people which is going to hurt their revenues. So the states are going to have to start to get their own acts together in terms of taxes and the Republicans are smart. They'll have candidates next year running for governors and then many of those blue states making that point now we've got to lower the tax burden. But it was unnecessary thing they could have phased it in, they could have done it in a way by reducing rates more. You know back in one thousand nine hundred and eighty-six when they cut the top rate from fifty to twenty-eight, they didn't wipe out all the other deductions. They took some away but states still reduce their taxes New York state under Mario Cuomo, a liberal governor reduce the top state income tax rate. So there was a better way to do it, I wish they had done it because it would have been good for the economy and it would have been better politically for the Republicans.
David Scranton: The word liberal meant something a little different in the nineteen hundred and eighties from what it means today. So speaking of today let's talk about your economic forecast for this year, you know I know this is just a stepping stone in your mind for the next tax cut that the Trump administration could hopefully engineer. But that won't be in two thousand and eighteen, so what do you think this is going to do economically for two thousand and eighteen?
Steve Forbes: What it does, is I think it will solidify a three, three and a half percent growth in the economy. As you know for a decade it's been under two percent, yeah we had a few quarters would go above it or we're going twenty-five miles an hour in a zone. In a seventy mile an hour speed zone, now we're going to get it up to forty, forty-five good start and if we... if the administration continues Trump continues on deregulation and the like good. Think what could go wrong a foreign crisis, a trade war would be devastating, he's got to do that right. So there are always things lurking out there, but they least got the tax thing on the business side right and if they make it clear there's more to come. I think we'll have the best year since really the middle part of the last decade and that will start to change people's attitudes. Hey, this first meal was good, let's have another one.
David Scranton: That's great and I'm not sure how much corporate spending on infrastructure, now they got that first year write off. I'm not sure how much that's going to happen in two thousand and eighteen because it's not a one or two-year thing. But you're right just the fact that the economy can grow faster if you're right if you're right and I have no reason to think you're not but we can get that up consistently over three, three and a half percent that should a positive effect.
Steve Forbes: And if the attitude is you know investment takes time, two years, three years, five years to pay off drugs you know for twelve, fifteen years. But the key thing is if people sense that plans are being made, that they are going to... Cap-Ex is going to go up on a sustained basis that chart starts to change attitudes. And you're also going to see something that's going to be tough on C.E.O.'s. Labor shortages, they're going to have to train workers more and that means there's higher wages and federal say, the Fed Reserve this is overheating the economy. No such thing, stable let it play out and people have a feeling we haven't had since the late nineteen nineties.
David Scranton: It's like confidence, it's the C. word which is wonderful so now I want to have some fun. You see you're on all different networks and I kind of live in a little bit of a cocoon here at Newsmax. So you get on some of these networks that are perhaps just a little bit more liberal than Newsmax. So, in our last minute or so tell me what are they saying? You know what are the critics saying now about... that's making all these news headlines about President Trump?
Steve Forbes: They're saying the world's going to come to an end, no meteors have been cited so they're going to have to backtrack on that. But this is where the president's got to figure out, he's got solid achievements in the first year. How does he take himself out of it so people can say hey this guy rose to the occasion despite all the things we might not have liked about him? So the skeptics will start to say maybe this isn't such a bad thing and so if he fix his fights more carefully, I think he can start to cash in on what the economy is going to do. What the market has already done, so people focus on the achievements and that will be a benefit to him and set him up for twenty-twenty.
David Scranton: You know it's funny, I have a feeling that you know we had the art of the deal. We had the art of the comeback and I think before the four year period is done we're would have another book entitled The Art of getting things through Congress. I hope and pray that he's going to figure it out. Steve, thanks so much once again for being on the show.
Steve Forbes: Thank you David and Happy New Year.
David Scranton: You too.
Steve Forbes: It’s been my pleasure.
David Scranton: Happy New Year. So next it's not your imagination, it's not a rerun. Yes, once again I am going to be shamelessly teasing my two thousand and eighteen market forecast, why? Because I feel it's going to be an especially valuable and eye-opening show and I really, really want to encourage you to tune in. Let's face it no economist or market analyst has a crystal ball, however, forecasting the year ahead is a key part of the job for any economist or advisor. Whose first priority is to help his or her clients protect their money, last week I shared some of the details I'll be examining as I put together my market forecast for two thousand and eighteen. And once again, those include the Federal Reserve and its ongoing efforts to raise short-term interest rates without flattening the yield curve. Donald Trump's tax plan of course, which we're taking a close look at on today's show, President Trump's entire presidency and whether or not his economic goals could be sabotaged by other policies and actions. And of course, let's not forget the global picture just like here at home it's a messy mix of economic promise and socio-political turmoil. Now, in addition to all that we'll be focusing on what you need to know to keep an eye on regarding the bond market. As I pointed out many times one indicator that Wall Street's optimism has been guarded since President Trump's election is indeed the bond market. It's often said that the bond market is smarter than the stock market at least its investors and participants or as so they say. But the bond market has not dropped proportionally with the stock market's rise, this would normally be the case with the stock market supported by fundamentals rather than hope and hype. The ten year Treasury bond, for example, its rate hasn't surpassed two point five percent since March. This is not only the crux of the Federal Reserve's yield curve dilemma but it's also a telling sign about the true strength of the sky-high stock market. I'll also talk more about a topic that I touched upon today and that is the significance of income when it comes to total return. Even if the stock market continues to cling to its lofty heights in the coming year, the question becomes what does that mean in terms of actual average return for investors with substantial market risk? Compared to those that are more conservative focusing on income instead of growth. So joining me to talk about all this next week and much more will be economist, Peter Morici. He'll be in, piped in from our Washington D.C. studio. He's a contributor and a frequent guest to many if not all of the networks including, yes right here at Newsmax. Peter will share in my forecast next week and he might even surprise us just a bit about his own forecasts concerning the economy and also the world inside the beltway. So, what can you do about it? Simple, if you're close to retirement and you really, really want to know how to protect and maximize your money it's absolutely essential that you stay informed and up to date. And as always you can catch up on any shows you've missed at www dot the Income Generation dot com. So until next week, I'm David Scranton your host. If you're over age fifty, this is where you can find the answers to your financial questions right here on the Income Generation. If you're near or in retirement head over to the Income Generation dot com and download your special report written specifically for the needs of the Income Generation. I'm David Scranton and you've been watching the Income Generation we'll see you all next Sunday.
Karina Brez: When it comes to investing, you always hear that past performance is no guarantee of future success. Yet many investors ignore that mantra and so often make three very common mistakes.
Monte Resnick: First mistake is chasing returns. This is commonly referred to as rearview mirror investing. This is like driving down the highway only looking in your rearview mirror and we know how dangerous that can be. Second mistake is trying to tie in the markets, there's a baseball Hall of Fame, there's a Rock N Roll Hall of Fame. But the market timing Hall of Fame is an empty room and the third mistake most common is chasing yield. This should be the most conservative aspect to your portfolio but when you chase yield you tend to take on more risk than you bargained for.
Karina Brez: So don't fall victim to those mistakes, talk to a financial advisor and have a strategy so that when you find that next time make sure not to get in too late or exit too soon. I'm Karina Brez.
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David Scranton: If you're not using someone who is well trained in fixed income and you're born before one thousand nine hundred and sixty-six it may just be time for you to break up with that advisor and move on. I would suggest someone who will care for you through these important years of your life. If you need help finding someone call or write us, I'd also like to remind you of the special report titled The Income Generation. This is available free to you our loyal viewers online if you haven't downloaded your report pick it up after the show. I'm David Scranton and you've been watching the income generation we'll see you all next Sunday.