At this crisis point in history - what could possibly create these rare and extraordinary gains?

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Since the Coronavirus came into our lives this slice of the stock market has given ordinary people the chance to multiply their money by 96% in 21 days on JP Morgan.

Trading  | December 7, 2017

According to an analysis from the Tax Policy Center, the Senate’s recently passed tax plan will increase the after-tax income of folks in every income bracket.  Of course, there are exceptions to every rule and plenty of arguments to be had between the Left and Right over how the tax savings scraps should be divvied up, but in the aggregate individual tax payers should see their net incomes increase in 2019.

But when it comes to the taxation of business income, one group of small business owners is about to get a massive tax increase, on a relative basis, compared corporations and other pass-through entities: Family Trusts.

As the Wall Street Journal points out this morning, many small businesses in the U.S. are organized as family trusts as a way to preserve an enterprise for succeeding generations, protect against estate taxes or a divorcing spouse or other claimants who might try to seize a stake.  But while the Senate tax bill provides a massive tax cut for corporations and individually-owned pass-through corporations, small businesses organized as family trusts will see no changes making them much less competitive on a pro forma basis.

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Family-owned businesses represent a large slice of the universe of so-called “pass through” companies, which are organized as partnerships, limited liability companies and S Corporations, and pay taxes through individual rather than corporate returns. Trusts in this category of business include Hobby Lobby, the arts and crafts chain founded by billionaire David Green, and Love’s Travel Stop. They also include a whole host of other small businesses from grocery stores, to packaging makers, wholesalers, beer distributors and family farms.

Tax writers in the Senate crafted the bill in a way that prevents trusts and estates that operate businesses from reaping the benefits of new low business tax rates. Republican tax writers haven’t explained their motives, but the move could save billions.

“If they are really left out of this, that in my opinion would be a problem,” said Ed McCaffery, who teaches tax law at the University of Southern California’s law school.


As the Tax Policy Center notes, under the Senate’s tax plan, Corporations will see their tax rates slashed from 35% to 20% and pass-through entities owned by individuals would also benefit while family trusts, randomly, would continue to see every dollar of their income taxed at the top marginal rate.

Earnings generated by such trusts are taxed as ordinary income—even if that income is retained with the company to be reinvested later. Every dollar of income is taxed at the top marginal rate, currently 39.6%, but 38.5% under the Senate bill. The Senate bill creates a new rule for pass-through businesses that gives those that qualify up to a 23% deduction on their tax rate. Trusts wouldn’t get that deduction.


In contrast, other qualifying pass-through businesses would receive a top tax rate of just under 30%, when factoring in the new deduction. The tax rate applied to corporations would drop to 20% under both House and Senate tax bills. In other words, businesses held in trust would have to pay taxes of from 10 to 20 percentage points more than other types of companies.

“This is potentially devastating to myself and others,” said Deborah Jacob, the chairman of MJS Packaging, which employs more than 100 people to design, make and distribute packaging and containers.

Senator Ron Johnson (R-WI), a vocal opponent of this particular component of the Senate tax plan, said that family trusts are simply being singled out as a way to save tax revenue because they’re an “easy target”…“We’ve singled them out to be mistreated. We couldn’t offer that kind of discount to everybody so let’s cut out trusts because they’re an easy one to pick off—we always hear about trust babies.”

Of course, the final tax plan that comes out of the conference between the Senate and House will undoubtedly look very different from the two bills that went in…the only question is whether the largest family trusts paid their lobbyists enough to matter.

As reference, here is a comprehensive comparison of current tax laws versus the House and Senate bills that were recently passed, courtesy of the Tax Policy Center (click on the image for a larger view).


A revolutionary initiative is helping average Americans find quick and lasting stock market success.

275% in one week on XLF - an index fund for the financial sector. Even 583%, in 7 days on XHB… an ETF of homebuilding companies in the S&P 500. 

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