Businesses won’t be allowed to deduct imports and interests costs. Yes, really:
Second, the tax change would capriciously redistribute income, increase uncertainty and place punitive burdens on some sectors. Think of a retailer who imports goods from abroad for 60 cents, incurs 30 cents in labor and interest costs and then earns a 5-cent margin. With a 20 percent tax, and no deductibility of import or interest costs, the taxes will substantially exceed 100 percent of profits, even if there is some offset from a stronger dollar. Businesses that invest heavily, hire extensively and export a large part of their product would have negative taxable income on a chronic basis; it is hard to imagine that the political process would allow annual multibillion-dollar refunds, and so these too may be victimized. Then there are the still unresolved questions of what the rules will be on interest deductibility for banks and of the treatment of businesses organized as partnerships that do not pay corporate taxes.
If they propose this sort of crazy plan I expect stock market to go deep red.
You guys elected a crazy moron for president. Time to buckle the hell up!
So he wants everything to be from USA starting from the ground? What is the point of international trade? Everything would become very expensive! Time to buy RE because cost of materials would shoot sky high, lead to high house price. Btw, do US import construction materials
That tax plan is beyond crazy. Expect huge trade wars, and not just China. How about Europe? It will just sit idly by? Worldwide trade war first, and global financial crisis later. You know some emerging markets will go belly up.
If businesses cannot deduct interests, but can write off full purchase price of machines in one year, which one do you think they will do:
A. Take a bank loan and hire people do some work, or
B. Take a bank loan and buy a machine to automate the process away
Even if the machine is more expensive they will go with Option B. How will that help employment?
Any interest cost associated with imports will not be allowed, i.e. all costs related to imports not considered as deductibles.
But, any local manufacturing interest costs are allowed.
The new tax plan does not encourage imports, but encouraging exports.
Just throwing my wild guess. Europe, Gulf, China and Japan are all economically weaker than USA now. When trade wars are there, they may be hurt more than USA. Time is good on Trump side , economy is good at Trump side.
USA starting from the ground: Yes, is this not good for local American?
Everything would become very expensive : Most likely, inflation increases, FED adds more rate hikes too. Trump wants US money to flow locally. People voted for this. They wants the jobs locally.
Knowing[quote=“hanera, post:59, topic:1037”]
Stock market is a leading indicator… Trump is not in office yet… Dow is not over 20k yet…
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Between Election results and now, many local stocks are jumped more than 20%. Dow will easily cross 20k now, just waiting for him to act.
The border tax adjustment would work by denying US companies their current ability to deduct import costs from their taxable income, meaning companies selling imported products would effectively be taxed on the full value of the sale rather than just the profit. Export revenues, meanwhile, would be excluded from company tax bases, giving net exporters the equivalent of a subsidy that would make them big beneficiaries of the change.
As a buyer I see some slow down but thats just appreciations slowing down instead of any correction. May be less over bidding. But nothing that opens up a significant buying opportunity. This is for peninsula area.
I expect no major correction this year unless something blows up in Tech or economy. The demand from the frustrated potential buyers from last 1-2 years who lost to overbidding and who now have a good chance to buy + continued low inventory will keep the prices from a drastic fall.
Market (financial) is flush with money enabled by trillions of dollars of debt and quantitative easing. even the confusion is looked positively. Unlike 2008 this is real money and not some trade instruments getting sold and re-sold with wrong risk rating and wrong insurance. It will linger around.
what is the problem by the way…just the high cost of RE in bay area? Markets at all time high?. Debt that zoomed from 9 to 20 trillion in 8 years?..low rates and low inflation and low unemployment can;t be the problem…
The border adjustment policy means there is no point selling domestically since need to pay tax, better to dump them overseas. This would lead to acute shortage of goods. Americans would need to pay high prices for goods from the black market or be starved to death… even food and beverages should be exported.
You are not serious …right?[quote=“hanera, post:71, topic:1037”]
he border adjustment policy means there is no point selling domestically since need to pay tax, better to dump them overseas. This would lead to acute shortage of goods. Americans would need to pay high prices for goods from the black market or be starved to death… even food and beverages should be exported.
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For bold highlighted: China is the major exporter of goods all over the world. You may be knowing that there is no scarcity of goods to local population by these exports. Similarly, encouraging exports and encouraging local manufacturing helps the country !
Whatever I read about Trump’s plan is to boost the local manufacturing.
For a long period of time, almost 30 years, corporate / companies buying goods (for example China) and services (For example India IT services) from outside world.
For low cost Labor market, they resort to Latin America world.
Low corporate tax purposes, almost many big companies park tax haven countries as hopping place.
US is used as marketing place for these corporate. Just by changing the tax policy, US break all these and trying to reverse the mass exodus of jobs.
Imports are 100% discouraged
There is no advantage of keeping money outside of USA for tax benefit by reducing corporate tax.
Exports are encouraged.
In fact, if 15% corp tax implemented, USA becomes tax haven compared to other countries. By adjusting the local taxing system, no country can agitate against USA tax policy directly !
Trump’s plan is a challenging plan (Unbelievable level) and drastic change to USA. US is business economy and reducing corp tax will help businesses long way. This may likely help fixing mass exodus of jobs out of USA. I feel Trump is using right tax policy to benefit USA economy.
This is the main reason stocks are going high no matter FED is hiking the rate !
China doesn’t have border adjustment policy. According to your table, scenario 1: Pay tax on $40. Scenario 3: Get refund of $60. Definitely go for scenario 3.
Market goes up because of repatriation and lower corporate tax, many are not aware of the border adjustment policy. The policy sounds like a joke, so many ignore it. Refer to your table, don’t use generic international trade concepts. Context my friend.
For any assets, people tends to buy them as price appreciates, and sell them as price declines.
So long the sentiments are bullish, people would continue to buy. Low inventory speeds up the price appreciation. High inventory slows down the price appreciation.
When the sentiments turn bearish, people would be reluctant to buy. Low inventory slows down the price decline. High inventory speeds up the price decline. RE is sticky i.e. price decline is not immediate, sellers would hold till it is obviously bearish, then sudden sharp price decline if prolonged. However, if sentiments turn bullish again, price would resume appreciating without much decline.
Sentiments is the most critical factor. If this forum is a good indicator, sentiments is still bullish. Also, there is hardly any bears in patricknet, a well-known bear site for RE.
That’s the thing. Every country in the world would be foolish not to retaliate and protect their own interests. So it will be USA against the world. Even if US “wins”, it will win with very heavy loss. I don’t even know what winning in this context means.
S&P 500 foreign sales is at 44% for 2015. USA is not invincible.
