Economy

Why Trump Chose CNBC's Kudlow to Replace Cohn as Economic Adviser

posted by Charley Mills - 3.15.18

Larry Kudlow is in as Director of the National Economic Council after Gary Cohn’s resignation. The outgoing Director was a huge advocate for tax reform and has been credited, to some degree, with getting that job done late last year.

Larry Kudlow is no stranger to politics. After getting an early start by campaigning for a Democrat—yes, a Democrat—Joseph Duffey along with the likes of Bill Clinton in 1970, Larry’s economic education kicked in winning him over to conservative causes. His work as associate director for economics and planning at the Office of Management and Budget in the early 1980s under the Reagan administration seemed to signal his official change of political persuasion to conservative Republican.

In recent years, Kudlow has been an advocate for conservative causes like lower taxes and supply-side economics. He is also a staunch advocate for fair dealing and outspoken against corporate corruption, making this clear in his criticism of Enron and WorldCom management scandals.

In contrasting the two, Larry Kudlow is no stranger to government or politics while Cohn had a successful career in the financial industry before accepting the job in the Trump administration. Cohn’s demeanor, that of a Wall Street trader, is reportedly a bit harsher and strategic, while Kudlow is revered by peers for his principals and ability to get along even while disagreeing. Both Kudlow and Cohn have openly disagreed with Donald Trump’s tariffs. It’s hard to find an economist who likes a tariff. However, his open disagreement shows Kudlow is not a “Yes Man,” even though he is still willing to take the position.

Kudlow, a true conservative economist, should fit well in Donald Trump’s administration.

William G. Lako, Jr., CFP®, is a principal at Henssler Financial, a financial advisory and wealth management firm that has been delivering comprehensive financial solutions to its individual, corporate, and institutional clients for 30 years. Mr. Lako is a Certified Financial Planner™ professional.

TARIFFS and DUMPING: What You Need To Know

posted by Charley Mills - 3.07.18

Will Trump’s proposed changes to tariffs and dumping impact you? In the short run, it will not. Besides scary headlines and threatening words from pundits, politicians, and leaders all over the world about a “trade war,” nothing is going to happen tomorrow. I tend to be a free trade guy, meaning I believe everyone in the world should be able to produce the goods they want and sell them across all borders at the best price possible. This sounds good when everyone is playing by the same rules. If you have one producer getting subsidized to help them produce the good cheaper, then the playing field is no longer fair.

This is what has allegedly been happening with China and others when discussing steel and aluminum imports. It has made it impossible for our domestic manufacturers to compete. The tariffs will bring the cost in line with reality and help our domestic production.

Tarrff Infographic

Infographic by Henssler.com

The long-term issue—the fact that steel and aluminum are going to cost more—means the input cost to make a beer can or car is going to go up. That means either the producer of those products will have to eat the additional costs thereby lowering their profits or pass along the cost to you the consumer, which means less money for you to spend on other things. Additionally, if a trade war breaks out then it will be bad for everyone as costs will increase across the board. I do not see that happening at this point, but one can never know.

What is the President thinking? To be honest, unless you are one of his family members or close personal friends, I doubt very seriously that anyone knows what he is thinking on any issue. I am hoping he is using this opportunity as a negotiating tactic to cut a better deal on NAFTA (North American Free Trade Agreement), to start pushing back on China and their trade practices, which in a lot of ways hurts manufacturing at home, and lastly to make sure our national security is protected. The United States cannot rely on other countries to produce essential items, such as steel and aluminum, during times of conflict. We must protect ourselves.

I will end on this note: The President is doing exactly what he said would during the campaign. Right or wrong, we elected him, and he is doing what he said he would do on tariffs.

William G. Lako, Jr., CFP®, is a principal at Henssler Financial, a financial advisory and wealth management firm that has been delivering comprehensive financial solutions to its individual, corporate, and institutional clients for 30 years. Mr. Lako is a Certified Financial Planner™ professional.

Tax Cuts and Jobs Act Promises Big Changes for Businesses

posted by Charley Mills - 2.27.18

Many economists believe the Tax Cuts and Jobs Act benefits corporations over individual taxpayers. You may have even heard financial news channels praising the benefits of corporate taxes. The theory is that the lower tax rates will push corporations to invest more in the United States by raising wages, increasing jobs, and expanding operations and capital expenditures, which would unleash unprecedented economic growth.

To begin, The Tax Cuts and Jobs Act, permanently replaced the graduated corporate tax rates that ranged from 15% to 35% with a flat corporate rate of 21%. Furthermore, the tax reform law repealed the 20% corporate alternative minimum tax, which ensured that corporations paid at least some taxes. The repeal allows companies to use loopholes, tax breaks, and write-offs to lower their effective rate below the new 21% flat rate.

With change alone, we’ve seen many corporations pass along their savings to their employees. AT&T announced, shortly after the reform was made law, it would pay a one-time $1,000 bonus to more than 200,000 employees. Banks Fifth Third Bancorp and Wells Fargo both reported raising their minimum hourly pay companywide. Moves like this certainly put more money into the hands of consumers.

The Tax Cuts and Jobs Act, permanently replaced the graduated corporate tax rates that ranged from 15% to 35% with a flat corporate rate of 21%

However, on the other end of the spectrum, we see plenty of corporations claiming they will take a tremendous tax hit because of the repatriation of profits. Under the previous tax laws, American companies owed federal income taxes on their worldwide profits, regardless of where they were generated; however, they could indefinitely defer the taxes on profits earned overseas, as long as those profits stayed overseas. The Tax Cuts and Jobs Act changes that: Companies will have a tax liability between 8% and 15.5% on overseas earnings since 1987. American companies are said to have more than $2.5 trillion in overseas assets. However, the law allows corporations to pay this “repatriation tax” over an eight-year period. That could bring in $200 billion to $300 billion in taxes over the next several years. Going forward, income earned abroad will be subject to federal income taxes of 10.5% or less.

Corporations based in the United States with cash locked up outside our borders should benefit from being on a more even playing field with their international peers headquartered outside the United States, but this doesn’t mean corporations will spend the newly-freed cash on capital projects. Companies have not been starving for the cash needed to buy new businesses, invest in new projects, or launch a new round of research and development. They seem to have been more interested in taking less risk and getting easy returns. Low-interest rates have allowed companies to borrow on the cheap and buy back their own shares, even at what seem to be bloated prices in some cases.

Another feature of the Tax Cuts and Jobs Act is accelerated depreciation. In the past, we’ve seen accelerated depreciation used when the economy is soft to jump-start spending to get out of a recession. This time we are far from a recession, so it will be fun to watch how it plays out. The government has structured depreciation so that a small firm can buy a vehicle, equipment or other asset and write it off 100% in the year of purchase. If there is something a small business has been meaning to upgrade or buy in order to expand, they are more likely to invest their money into their business than to pay more to the government in taxes. Therefore, we believe we’ll see more capital expenditures.

Will this tax law unleash unprecedented economic growth? The key will be how they—both the government and corporations—spend the windfall.

William G. Lako, Jr., CFP®, is a principal at Henssler Financial, a financial advisory and wealth management firm that has been delivering comprehensive financial solutions to its individual, corporate, and institutional clients for 30 years. Mr. Lako is a Certified Financial Planner™ professional.

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