HAVE YOU BEEN WONDERING WHY IT TOOK OUR GOVERNMENT LONG TO CUT TAXES?

Have you been wondering why it took so long for our government to get tax reform passed? Any change results in both winners and losers. Give this a gander.

Goldman Sachs Is Taking a $5 Billion Hit From the Republican Tax Bill

Goldman Sachs Group said the U.S. tax reform will cut profit this year by about $5 billion, mainly because of a tax targeting earnings held abroad.

About two-thirds of the hit comes from the repatriation tax, while writing down U.S. deferred tax assets also contributed, the company said in a filing on Friday. The bank also accelerated the delivery of previously granted stock awards to many of its top executives to lower its taxable profit subject to this year’s higher rates.

While bank stocks have rallied on the tax bill’s lower corporate rates, the new law requires charges in the near-term as foreign earnings face taxation and the value of deferred tax assets declines. Citigroup (c, -0.85%) said it expects a hit of as much as $20 billion, while Bank of America (bac, -0.97%) will take a $3 billion charge and Credit Suisse Group (csgkf, +0.06%) is at risk of posting a third consecutive annual loss. (continued here)

You can bet these guys did not want to take losses of this sort. They will make it up, but they still don’t like it.

Other Sources

10 thoughts on “HAVE YOU BEEN WONDERING WHY IT TOOK OUR GOVERNMENT LONG TO CUT TAXES?

  1. Thanks for the insight. There seems to be a lot of confusion about what is the result from tax decreases and tax reform. For some, taxes are going up because of reform. Others who haven’t benefited from tax “loopholes” will see decreases because of actual reductions in the tax rates. It is painful for Goldman Sachs and others because of the reform.

    Because of this mixed bag, we are seeing lots of interesting reactions.

    Happy New Year!

    Liked by 2 people

  2. I can’t wait to talk to my tax accountant to obtain the real lowdown on the effect of the tax bill.

    I still remember the Bush tax cut based on trickle down economics theory never resulted in a balanced budget.

    Someone said trickled down economics is like try in lift a bucket of water while a person is standing in the bucket.

    I am also convinced that politicians do not care if USA land and assets are owned to foreign entities instead of USA citizens.

    I guess we will know the results in time.

    Regards and goodwill blogging.

    Like

    1. The term trickle down economics confuses the issue more than it helps. The two factors at play. The first is the tax rate. The second is related to who tax rates are being reduce.

      Let’s first look at the tax rate. Suppose we start from zero. Then in the next year we have a 10 percent flat rate. In the subsequent year we go to 20 percent, then 30 percent and so forth. At first the amount of money we collect will increase. However, the amount of the increase will decrease every time we raise the rate and yank in another 10 percent. Eventually, the amount of money we collect will start to decrease. When the government does not let people keep the money they earn, what is the point in working for it.

      Now let’s look at who is being taxed. The dirt poor don’t make and money don’t own anything. They pay nothing. They are on welfare. The working poor pay payroll taxes, that is, Social Security and Medicare. Those comfortable and well-to-do pay Federal Income taxes and some capital gains taxes. The rich pay capital gains.

      Most Federal income taxes are paid by the well-to-do. These are people with high salaries. When we reduce the tax rates on these folks, they have more money to buy stuff and invest. When people buy stuff (even the government) that gives people jobs. How investment does the same, and it increases productivity because it investment involves purchases in plant and equipment. That is what people generally call trickle down economics.

      Because this tax bill also resulted in a reduction in the corporate tax rate, we will also get some trickle down from that. When the rich make money, they generally reinvest it. Otherwise, they would not be rich very long. We will also make it more profitable to do business in the United States. So more people will invest their money here instead of somewhere else.

      Liked by 1 person

      1. There is a difference is investing to build something that produces something of value, and in turn pays wages to workers, who then buy goods and services.

        However, when investment is used to give loans to earn interest, and the interest keeps increasing in relation to wages earned, the result is less money borrowers have available to buy goods, or services, or equipment.

        In other words, if the USA had not borrowed so much money and now pays a large portion of taxes to pay interest, the result would be lower taxes.

        The USA needs to quit borrowing to reduce taxes instead of borrowing more to reduce taxes.

        How to do it? One way is to sell all American land owned by the government to the pay off the National Debt.

        Another way is to cut government services so less taxes are paid to government employees.

        Sounds crazy, doesn’t it. But that is what is what the American Government has been doing by allowing foreign entities to use their accumulate dollars obtained from Trade Deficits.

        The only thing trickling down by government borrowing is USA assets, and the value of the dollar.

        Regards and goodwill blogging.

        Liked by 1 person

        1. I agree the deficit is harmful to the economy. Governments can rarely justify borrowing. Our government has no excuse. In fact, we need to get rid of the Federal Reserve and get back to a gold standard.

          Liked by 1 person

          1. Not too certain about returning the gold standard because it brings about limitations in economic expansion.

            ` When we ended the gold standard, we decided to exchange our nations land and assets instead of gold.

            Same as the American Indians exchanged Manhattan Island for Wampum.

            I probably won’t be around to know the end result.

            I do know what happened to the American Indians.

            Regards and goodwill blogging.
            .

            Like

          2. It is not a simple problem, and I am not a finance wiz kid. If you have not read The Wealth of Nations by Adam Smith, I suggest you do. It will give you idea of what they were thinking in the 18th century.

            The thing to keep in mind is that government did not invent money. What government has done is taken control of it. What we have now is fiat money, and this money only has value, that is, a demand for it, because we use it to pay our taxes.

            What our leader do with our money is use their control over it as an excuse to manipulate our financial systems. We really don’t want them doing that. Two reason:
            1. They often don’t know what they are doing.
            2. What they do tends to be more corrupt than not. Forcing banks to give loans to people who don’t qualify is just stupid, for example, but it does allow them to buy votes with other people’s money.

            Liked by 1 person

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