We sit down each year with our clients and run through all of these tax scenarios and just kind of try to think ahead and be proactive as we project out the next one, two, three, five and even 10 years and beyond. Welcome to Keen on Retirement, a show dedicated to helping you thrive before and during your retirement years. If you are looking to grow and protect your wealth and want to make the second half of your life the best half, then listen in as well advisor Bill Keen and his host sort through the key issues that you need to know in a lively and candid way. Hey everybody, welcome to 2018 with Keen on Retirement.
I'm your co-host Steve Sandusky. I'm here with Bill Keen and Matt Wilson. Gentlemen, welcome to the new year. Well, happy new year to you as well, Steve.
How's it going for you up there? So far so good. We're coming out of the deep freeze here. I think a lot of the country was really cold here in December and now we're warming up a little bit here in January.
So we're looking forward to a great 2018. We weren't feeling too sorry for Steve up there in Milwaukee, where we went. It was a negative 10 here, there were a couple days. It was cold here.
Steve, I remember you talking about Lake Effect Snow and we actually had the experience of that here in Kansas City. So would you have like Missouri River Effect Snow? No, this. No, no, no, no.
Well, I guess technically it wasn't in Kansas City. Like the Ozarks had Lake Effect Snow. Oh, they did. Yeah.
Oh, very nice. Well, I experienced it when I was visiting Stephen Linda. I experienced it there in Michigan on the public. Well, it's interesting because we're on the Western shore of Lake Michigan and the prevailing winds are coming out of the West.
So it's not often that we get Lake Effect Snow because the winds have to be coming from the Northeast or from the East to actually get some Lake Effect Snow. So it doesn't happen all that often, but when it does, it's kind of pretty. Well, hey, we are going to talk about one of the most exciting topics in all of finance. You know what that is?
Oh my goodness. Well, I would say getting to spend the money we say, but that was a prior episode. So I think you might be kind of having some fun with it here. Yeah.
Well, spending is a close second to this topic. Oh my goodness. Well, now I know you're kidding. Yeah.
It's all about taxes. And of course, we've had some major changes to the tax law. So we're going to have a little fun with it, but we're also going to get serious and talk about how those changes may affect all of you listening. And yeah, so why don't you guys kick us off?
What all do we need to be talking about here as it relates to taxes? Well, you know, we talk about spending. It's kind of goes hand in hand with taxes because we know that taxes are the number one thing that come out of our paychecks. And hopefully, actually, I should restate that.
Hopefully it's our savings that come out first. Then the taxes, if we're doing it and taking advantage of what's available and then what we have left, we do get to spend. So you know, it is good that we talk about this. And in the format that we have here today, and we're going to discuss the different pieces to it that people should be thinking about.
Of course, most of what we're talking about doesn't apply to the tax year we just came out of. Most of it does, but most of it applies to 2018 and beyond. So I think we'll do a good job here. But probably come back to this again.
But I thought it'd be good to play the framework today. Didn't you, Matt, for some of the main changes that have happened. Now, Steve, are you worried about an IRS audit? Not particularly.
OK. Maybe I should be. Right. Right.
Well, you need to avoid what's called a red flag. If you're concerned about an IRS audit. And I'll bet you're wondering what that red flag is. Bill, what is that red flag?
So a red flag is something that the IRS always looks for. Now, here's an example that Jay Leno shared. He said, if you pay your taxes and then you have some money left in your bank account afterwards, that's considered a red flag. Oh, OK.
I hope that's not actually true. Now, is that before or after you take your savings out first from your paycheck? Well, hopefully Leno's probably saved a little bit of money. He's probably got some of those tax shelters that everybody talks about.
I don't know. He's bought a whole bunch of fancy old cars. Yeah. That's right.
He's probably depreciating motorcycles too. Or something. Well, you know, the taxpayers are sending congressmen on expensive trips abroad. You know, that's still happening.
You know what? Yeah. Will Roger said it might be worth it, except they keep coming back. All right?
Hi, goodness. Yeah. That's a great subject. There's a new word that's gone on out there.
I think Wikipedia is picked. And if you know how we're inventing words, it seems like more and more often these days. There's a new word called Intaxification. You heard that word before?
No. Intaxification. It's the nice feeling that you get when you receive a tax refund until you realize that it was all your own money in the first place. So that's a good point, though.
Yeah. If you get a tax refund, you're essentially giving the government an interest-free loan of your own money. That's right. And most of our clients get that, don't they?
That's right. We sit down in the meetings where we're talking about with holdings and how we want things to play out toward the end of the year. And nearly everybody we work with says, hey, I'd rather owe just a smidgen than getting money back because they get that concept. But I'll tell you, Steve, you know, I know as your kids have grown up and started to get jobs and mine as well, this whole tax thing is shocking to them, isn't it, when they get about two-thirds of what they thought they were going to get on their paychecks.
Anyway, so the government had spent some time here trying to hammer out a new tax bill. And that got completed and signed by the president toward the end of December. And now those are going to take effect. Some of those are going to take effect here in 2018.
So let's dig into some of the major changes that we can expect here in the years to come. We've dug into as much as we can on the tax bill right now. I mean, we're still going to analyze all the minutiae. Even though they called it a simplification, there's a lot to it.
But the biggest things are around the brackets. So those had a big overhaul. We also had some changes around some deductions and what those look like. And then we have some new rules around 529s and state and local income taxes.
So, you know, these are the things that are going to affect most retirees. And, you know, I guess we could kick it off kind of starting with the brackets. At what rate does our income get taxed at based on how much income we have? In math, they really just shaved a couple percentage points off most of the brackets.
Did they? I say two or three percent off most of the brackets. That's right. So they changed them.
I mean, it was a slight change, but it was considered, you know, this new tax plan, I think, considered the biggest change in the last 35 years. So something that is, it doesn't come around that often. And actually, you know, to off on a tangent here, I saw the client Ford me this. A Wall Street Journal article.
It was kind of joking, but it said, who's the most interesting person? At your holiday parties this year? Your tax account? All right.
That's always the case, is it? I don't think that's ever the case. No offense to tax accounts. No, it's just, you know, there's a little more interesting things to talk about.
But this year, there's a lot of tax information out there. So, so we do a lot of analysis around the brackets. And when we pull money out of IRAs or when we pull money out of taxable accounts, you know, what impact is that having our taxes? When you look at the brackets, they start at for, you know, for married couple, for single couple, the first portion of your income is taxed at 10%.
And then the next portion is taxed at 12%. And not to, I know we're not looking at slides here. Folks are listening to this on iTunes or their mobile devices. But just to give you an idea, I'm sorry, I didn't interrupt, but I just thought, at least on these initial brackets, the way it works is the first $19,050 that a married couple makes will be taxed at 10%.
And then from $19,050 up to $77,400, that portion, and only that portion is taxed at 12%. The first $19,050 is taxed at 10%. No, all the brackets then roll out, and I won't belabor you with the actual numbers of the brackets, but I just want to throw that in there kind of how that works, and give a little little idea about the first couple brackets at least there. Yeah, and the next one, these bottom three are the ones that we do a lot of planning around where we see the most income for clients.
So the next bracket starts at 22%. And the portion of income that applies to that bracket is $77,400 to $165,000, and that's for a married couple. If we didn't adjust the marginal rates this year, the dollar brackets wouldn't have changed, but the first $19,000 for a married couple still would have been at 10%. The next portion, $19,000 to $77,000 would have been at 15%, and then from $77,400 to $165,000 would have been at 25%.
So that's where you can see the difference is it's roughly 3% on those second and third brackets. And I worked through a little example just comparing the married couple. If they had basically an adjusted gross income of about $98,000, their taxes in 2018 will be their federal tax, the state tax didn't change much. Their federal tax would be about $2,000 less.
Under the new, the new law. That's right. And that's someone who doesn't itemize just going to the standard deductions. A couple percent is what someone's saving off their adjusted gross income.
Rough estimate. So it's going to be unique to everybody, but as part of this, they also changed what the standard deduction is. So that's another key component to this. So everybody gets a portion of their income tax free, and that's what they call the standard deduction.
If you're single, the standard deduction in 2018 is $12,000. If you're married, it's $24,000. The old rule, if they didn't change it, it would have been $6,500 for a single person and $13,000 for a married couple. So you can see there's a big jump in the standard deduction.
This is going to simplify things for a lot of people that had some smaller itemizations, isn't it? A lot of people will probably be taking the standard deduction now. That's right. Actually, I saw a statistic that said it's about 70%, 2017 in prior years.
70% of individuals would claim the standard deduction. It's now looking at about 94% of individuals will now claim the standard deduction. So individuals married couples kind of all in one. Right.
So moving the tax system to something more simple, is that? Do we call it Ripley's believe it or not for that? I know. It is going to simplify things.
I'm going to joke about filling out your tax return on a postcard. Yes. So the standard deduction, so now we're seeing this increase, but what changed was they got rid of the personal exemptions. So in 2017, if you weren't itemizing, you would claim the standard deduction and you'd also claim a personal exemption.
And that personal exemption is also income that you would get tax-free. 2018, if the rule didn't change, would have been $4,150. There's now there is no more personal exemption. So kind of to compare the two, the new rule is, $24,000 standard deduction, no personal exemption.
And $13,000 for a married couple, $13,000 standard deduction, and then two personal exemptions, which would have been an extra $8,300, you'd add those two together, you'd be about $21,700. So you're still better off with this, with a higher standard deduction. What's interesting is if you have several kids, you actually get penalized under the new tax law because under the old law, you had a personal exemption for each of your children. That was $4,000 in change.
And now that's gone away. So if you have two personal exemptions, say a husband and wife, and then you had, say, $12,000 for the children plus $8,000 for the husband and wife. So there's $20,000 plus the original standard deduction of $13,000. So now you're at like $33,000 that you can deduct versus with the new law, you're capped at $24,000.
So that was, I think, one of the complicating factors with the new tax bill is that it is going to vary depending on your personal situation. If you're older with no kids or no kids in the house, yeah, you're probably going to see a break. If you still have multiple dependents, you may actually see a little bit of an increase. So it really depends on what your personal situation is.
They did increase the child tax credit. So that will offset some of the loss of the personal exemption. So that'll help to an extent. But it is, again, it's going to be kind of unique because it depends on how much you itemize.
You get a certain portion of your income tax free. And that's the standard. But if you have certain expenses over and above the standard deduction, we'll let you claim that. So you'll get a higher portion of your income tax free.
And that's called claiming the itemized deduction. Things like state income tax, mortgage interest, charitable contributions, that kind of thing, right? That's right. That got tweaked a little bit too.
The biggest one was the state and local income taxes. I've never heard this term before, but now we talk about salt, Steve. Do you need to understand these acronyms? I mean, I think a salt, obviously, is what you put on food.
But I'm going to test people here. You go way back and we think of salt wasn't that a treaty like the Strategic Arms Limitation Treaty or something like that, back maybe in the Reagan days? I think it was. I do think it was.
Oh, wow. So I'm going to eat one out here. Hey, we got to keep you guys on your toes. I like it.
I'm thinking more like putting salt on your wounds is how I'm looking at it. There you go. Well, we could have a field day with this stuff related to salt. Right.
So state and local taxes. State and local taxes. It also includes property tax, I believe is a little bit of a clue. Real estate taxes, property taxes.
Those are included in this. And the original proposal was not to have any of that deductible. So 2017 and in prior years, you're able to deduct from your federal tax return the taxes you pay to your state and to your local municipality. Well, it kind of makes sense, doesn't it?
Yeah. You're paying money in taxes to the state. So you're nice to not have to pay tax on that money that went to taxes. Yeah.
I mean, it does make sense that they would allow you to deduct that. To the detriment of some of these high tax states like New York and California, they did compromise and they capped it. So this state and local tax deductions still exist, but only up to $10,000. Between all those different things combined, huh?
That's right. So for working individuals, you know, you could be paying more than that in just state income taxes. So if you're making a couple hundred thousand a year, you're paying maybe 10,000 in state tax. And then if you have a home, you pay some property tax.
Yeah. There you go. Maybe a local income tax like here in Kansas City. There's an extra tax if you work in the city, property tax, real estate taxes, all of those things are all added together and capped at $10,000.
So that is a big hit to people who claim the itemized deduction because now you're going to be limited to that amount. I'm seeing some articles online about how states might try to help their constituents out by figuring ways around this. I saw one proposal that said, well, we'll just cap your taxes at $10,000 and the rest will be considered a charitable donation. Oh, the same amount.
So I don't know how that would work. And I think they're all just got to try to figure out if there's ways to work the system here a little bit to help their tax local taxpayers. California, New York's trying to keep their residents there until they can get the sink in a little bit. Yeah.
I think there's probably another name for this tax bill. It should be called the long term CPA and tax attorney full employment act. Right. But it keeps us on our toes and busy as well.
So I guess it's all good. Yeah. There'll be lots of time and energy spent trying to find ways to really, I don't want to say game the system, although that's essentially what I think may happen in some cases, but really trying to take advantage of the way the laws have been written to make it most tax favored to the taxpayers. So a lot of that stuff happening over the next 24 months.
Yeah. And of course, all these rules are set to expire in 2025. So don't get too attached to them. Yeah.
Well, here's what's funny. They say that the corporate, which we haven't talked about yet, the corporate tax rate, which was the big change is permanent, but these personal rates are set to revert back. What was it 2025? Yeah, 2025.
Is there anything that's permanent taxes? You just can count on always having to pay taxes. Oh, taxes in general. Yes.
So we just say one is permanent one is not permanent, but I'm not certain that exactly any of this is permanent. Changes the only constant. Right. Well, we say death, but heck with the changes in medical technology, maybe we're going to live and cheat death.
We've moved to Mars. And that's a whole other story on financial planning. So we'll say that for another episode. I wanted to mention something just real quickly because I do get questions on this thing called the marriage penalty.
If you're not familiar, kind of a simplified version, yes, let's say that two single individuals earned a taxable income of 90,000 per year. Under the old 2018 tax brackets, both of those individuals would fall into the 25% bracket for singles. However, if they were to get married, their combined income of 180 would catapult them into the 28% bracket. So under the new brackets, they would fall into the 24% marginal bracket, regardless of whether they got married or not.
That's good. We don't want to penalize marriage. Right. Exactly.
That's right. Now, there was, there's a couple more deductions that they did change, which will have some impact on individuals. The mortgage interest deduction, now this probably doesn't hit that many people, but they allowed you to deduct mortgage interest on the first $1 million of mortgage that you have. So that's not common to have a million dollar mortgage plus.
Well, the new rule now is for any new mortgages that cap now for deductible interest is on 750,000. Now we're here in the Midwest, so we don't see as many mortgages that big, but again, that's going to hit the coast a lot harder. In addition to that, though, they also, this is a big one, they got rid of the deductibility of home equity loan interest. So if you have a home equity loan, 2017, you're able to deduct the interest, 2018, you were not able to deduct the interest.
So the way I understand it is if you have an existing mortgage that's a million, that's you still get to deduct it in the future. But if you have an existing home equity loan or HELOC, we call them, no, that's not grand father. Not grandfathered. So in some cases, it could make sense to refinance, roll that back in to a first mortgage, and then you'll be able to deduct it again.
But again, if you refinance, you're going to be subject to the new limit. So you got to take that into consideration. The other thing that they changed to was around medical expenses. So you haven't been able to deduct any medical expenses on the first 10% of your AGI.
So for example, if you had $100,000 of adjusted gross income, 10% of that first $10,000 of medical expenses aren't deductible. So if you had $20,000 in medical expenses, you can't deduct the first $10,000, you can only deduct the second $10,000. Well, they changed that, they lowered it, it's going to be 7.5% of adjusted gross income. So they gave a little bit on that one to individuals and families with higher medical expenses.
And it was 7.5% before, we changed it up to 10 recently, right? Yeah, 10 is a new number that's been out there for the last couple years, was 7.5% now it's going back down. And this is one of the only rules that is retroactive in 2017. Right.
You can deduct this, this will apply when you're doing your 2017 taxes, medical expenses have a lower threshold. So that's something that is nice for those individuals. Outside of that, there's some changes to the AMT, which doesn't hit a lot of people, but the new changes in the tax rules will help people that got hit by AMT in the past, AMT stands for the alternative minimum tax. So it was a way for the IRS to tax wealthy individuals several decades ago that were using all these deductions and exemptions to get out of taxes.
Well, they have this formula that says, well, based on a certain level of income, you're going to pay a minimum amount of tax no matter what. And that's what this alternative minimum tax is. Well, they haven't been adjusting those brackets for decades. And so it's hitting more and more people and now they've increased those thresholds.
The other issue is the estate tax exemption, they increased that. So the current rules are in a state value at 5.6 million per individual. So 11.2 million per married couple. Well, that now has been doubled in 2018 going forward.
11.2 million now per individual, 22.4 million per couple. So less and less people will be subject to the estate tax than prior years. Steve, you still be subject to the estate tax though, right? I will.
But I'll still save a lot by doubling it to 22.4 million. All that Bitcoin you've been supporting. That's right. The Bitcoin and Ripple and Litecoin and Ethereum.
You betcha. He doesn't have any of it though, Matt, because remember last episode he said it or two episodes ago, he said if he had made a multi-year talk to us sitting there. Yeah, that's right. Well, we'd have to help you navigate this tax mass that you're in.
That's right. That's right. And then how they're going to be taxing Bitcoin in those, those are its old numbers. And we could discuss all that on my G5 as we're flying around the country.
Yeah. You got the attention, Steve. I would be your advisor if that was. And you could fly it too.
I would get the training. I would. Yeah. Now, here's one piece to the individual, to the tax code that I think didn't get a lot of airplay, because most people probably don't think about it, but they adjust the brackets every year for inflation.
So this is built into the tax code that they're going to increase the brackets, the dollar amount. So the first 10%, you know, it's $19,000, $50 in 2018. Last year, it was $18,550, I believe. So, you know, there's a $500 increase there.
That's the inflation adjustment that they apply to these brackets every single year. Well, they used a formula based on the CPI. And it was officially called the CPI U. And it was just a essentially just tracks a basket of goods and services that the typical household would buy.
So they would adjust the brackets based on whatever this calculation, whatever this measure was on an annual basis. CPI consumer price index, sometimes these acronyms would dry out. That's right. So the new law is now changing it to what's called the chained CPI.
And essentially the key difference with that is that the chain CPI assumes that if you have, if there's a particular good or service that gets too expensive, consumers will trade down to a cheaper alternative. So what that means is that the rate of inflation that these brackets are going to increase by is going to be reduced. When you just compare CPI to the chain CPI, chain CPI is lower than CPI. It will be lower.
That means as time goes on, more and more people will be in the higher brackets. Their wages should inflate faster than this. And wages go up, but the brackets aren't tracking inflation as fast. So you're going to be paying more in taxes because the brackets aren't increasing faster.
Now, that's a sneaky way to over time make quite a difference isn't it in tax revenue. That's right. Interesting. One of the things they threw in there to try and maybe help this trillion, trillion, half dollar deficit that is getting discussed about what these brackets will cause.
But even more so, the probably the bigger overarching issue is that chain CPI, now that it's applied to the tax brackets that the IRS uses, it could now be up for discussion for Social Security cost of living adjustments. So right now they use the higher CPI. Now that they've already implemented it there for the tax brackets, I wouldn't put it past Congress to start discussing that now going forward to change how Social Security colas are calculated. Interesting.
Yeah. They sneak those things in there and then they start to change everything. They do. It's several years of zero, right?
Are we going to go negative on those at some point? No. Arrangement? They haven't gone negative yet, but I wouldn't put it past them.
Right. Right. So I think just some key things to think about here maybe to summarize what I hear you guys saying is as we look at this overall tax changes as it applies to individual. Generally speaking, we think that most people will see a reduction in their tax bill.
Again, everyone's situation is different, but on balance probably more than half of the population is going to see a tax decrease, at least for 2018, maybe the first few years. And some people will benefit more than others. And then the individual tax changes, the tax laws that apply to individuals were temporary. So those are going to be in place through 2025 tax year, but then they are scheduled to revert back to what they were.
Now, chances are we're going to have a whole different situation by the time 2025 rolls around. Yeah. Congress will be changing things. So we have no idea what things will look like in 2025.
So all we can deal with is where are we at right now. So again, we should see some on balance, some reductions for the average American. Now, I think maybe we need to spend a minute here talking about the corporate tax changes because that is what seems to be getting the financial markets all excited with some of the big changes we've seen on the corporate tax side of the ledger. Yeah.
Corporate taxes did change. So, you know, the new rate is now 21% in all profits. Prior to that, basically, the threshold was 35% on profits on taxable income over 18 million, which hit most major businesses here in the United States. So now we're going from 35 down to 21.
And it's 21 flat. So they had brackets before, but you know, that for bigger businesses, the brackets really didn't matter that much. Now, here's one interesting piece to this. And I mentioned this at our outlook when I did my presentation is in the United States, the effective corporate tax rate is 18%.
Even when we've been higher at 35, most corporations aren't paying 35%. So how were they getting their rate down to 18? So there's all kinds of business deductions and exemptions and ways to reduce your corporate tax rate. So now that it's 21 flat, again, probably not much of a windfall from new taxes going forward because we essentially businesses weren't paying that much to begin with.
They've been paying 18 when you just looked at all business taxable revenue. So, when we look up a year or so from now and say, wow, okay, 21 was the flat rate, but they're only paying 13 or something because of the way they've received that earlier kind of well gaming the system. I don't know. Maybe it's just working with what you're getting, right?
I mean, that's what the tax code says. Yeah. So that's one thing that we'll watch closely to see. Because the effective rate is what we care about.
That's what you pay in tax dollars divided into your income, whether you're an individual or a business, how much taxes do you pay in dollars divided into your income? So we'll pay close attention to that. But also they did change the repatriation on foreign cash and foreign assets. So what the old rule was to bring those assets or that cash back to the United States, then you had to apply the higher tax brackets to that revenue.
So you're talking basically 35% to bring back anywhere from $2 to $3 trillion in cash and assets overseas. So most companies have just been leaving it over there. It's not being productive over there, but they're not seeing a 35% tax rate applied to it either. So part of this tax reform here is they have now for repatriated cash, it's 15.5%, and then on illiquid assets like equipment, those are taxed at 8%.
So they have reduced that significantly even lower than the corporate tax rate to spur businesses to bring that back here to the United States. We had any announcements yet from any companies declaring that they're doing that or I guess they don't necessarily have to do that or announce that. But I know Apple has something like $200 billion parked overseas at this time. So this could be a big factor.
I know after the passage of this, we did see several major corporations announce one-time bonuses in that $1,000 range. I saw several businesses announce that. We're not seeing much on this repatriation because I think they want to just run through what their taxes look like and don't want to get too ahead of themselves because this is a major decision that they don't want to just need your say they're going to do it without actually running through all the figures first. And this repatriation is really an interesting issue because the way that money got overseas to begin with is these are American companies who would have say a foreign subsidiary and they would make a sale like in England or they'd make a sale in Germany or Australia.
And so that would be counted as revenue in that country. And so the money then would technically like sit in that country and they couldn't pull that money back into their US bank accounts without paying that 35% tax rate. And so that's when we were hearing in recent years where American-based companies were changing their domicile to be Ireland for example or somewhere in the Isle of Man or some other oddball country that had a super low corporate tax rate. So these companies instead of being an American-based company, even though they may have been founded here, they changed where they were officially headquartered to be this other country that had a lower tax rate.
And hopefully this new change lowering the repatriation would preclude people from trying to do that because now we've got a more comparable corporate tax rate where it doesn't make sense for US companies to say, well, we're going to change from being headquartered in Chicago to being headquartered in Dublin, Ireland because they've got a 9% corporate tax rate or whatever it may be. So hopefully there'll be some benefits there and it'll more level the playing field internationally. Yeah, because essentially they were double taxed. I mean, the system now says you have to pay foreign tax on it wherever you earn that.
And you're going to be subject to whatever their tax rules are and then they bring them back your tax again here in the US. So this is to make our corporate taxes much more competitive across the globe. The US is one of the last countries to actually reduce their corporate tax rate. Countries across the globe have been doing this for years and the US has held out and we're finally kind of catching up with all the other countries.
Now, guys, what do you think the impact on the US financial markets has been from these tax changes? Now, obviously, we've had an amazing run in the financial markets here just in the past 12, 18 months. How much of it do you really attribute to anticipation of reforming our tax laws versus the economy is just continuing to roll along here and doing well? Do you have any sense for how you think about that?
Yeah, I mean, the two things that drive the market are earnings, corporate earnings and just the health of the economy, growth in GDP, essentially. And corporate earnings in 2017 had zero impact by this new tax law. And corporate earnings grew significantly on a year over year basis from 2016 and that's what drove the market higher. We dug into and we looked at different types of stocks and what tax rate they were subject to.
And you would think with all this chatter around this new proposed, especially throughout 2017, all the tax proposal would be driving high tax stocks higher. Because you would think, okay, stocks are in a high tax bracket, they're going to get a nice windfall. They should be outperforming low tax stocks that don't pay a lot of taxes to begin with, which would have very little impact on new tax laws. That was not the case.
Low tax stocks outperformed high tax stocks in 2017. I would encourage our listeners if you haven't already to go back the last episode on our podcast, which was also videotaped. It's out there online at keenonretirement.com. Matt did a great job and we had his video presentation plus all his slides.
So that specific slide that he just mentioned or that information he just mentioned was in the slide format, along with quite a few others where he does a really good job answering that question, Steve, that you asked and many others as well. So if you haven't gone back and watched that video, I would recommend that you do that. It's interesting to hear Matt say this tax legislation had nothing to do with 2017. It's earnings in the company's tax tax earnings because it wasn't out there yet.
That's right. So our take is what, Matt, this tax passage had less to do with where we are today than most people think. That's right. I mean, there are definitely some market movement higher just because taxes are going down because now future earnings, so 2018 earnings are going to be better because the corporations would pay lower tax.
At least that's the theory. We'll see once earnings actually come out on a quarterly basis. But if this law didn't pass, the market would have reacted short term, but long term, it's always going to come back to our company's earnings growing or declining. What are we doing on a quarter of a quarter basis, year over year basis?
That's always what the market trades back to, is profitability of companies and also the health of the economy growth of GDP too. Well, guys, I think it's fair to say that as a result of these tax changes, there's generally speaking, there's going to be more cash in people's pockets and more cash in corporations coffers, which is good for everybody. So as we wrap up here, do you guys have any final comments? We sit down each year with our clients and run through all of these tax scenarios and just kind of try to think ahead and be proactive as we project out the next one, two, three, five and even 10 years and beyond what makes sense today that we can do strategy wise.
And then how that might affect us down the road as we have to navigate and pivot with how loss change and life happens. We also talk with a lot of our clients CPAs where we'll run a scenario and then we'll put it in front of a client's CPAs to make sure we're not missing something and we'll literally ask the CPA, have them come to our office or we go to theirs and say, shoot holes in what we're thinking here, planning wise and really put our heads together with those other professionals. So the theme of today's takeaway is, you know, get out ahead of these things, think things through, sit down with your fiduciary advisor, your tax advisor and start to put pencil to paper on how these things might affect you going forward. Of course, we have the rest of the year for the 18 taxes to make changes and amendments and adjustments, but it's good to be talking about it early already.
Excellent. Thanks guys. Another great show went through a lot of material here today, really important things to be talking about. And I look forward to a great year here in 2018 in the podcast as well as in all the great work that the folks here at Keynn Wealth Advisors are doing.
So thanks guys, we'll talk to you soon. Well, thank you Steve. We'll talk to you on the next episode. The opinions expressed in this podcast are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security.
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