Sunday, December 11, 2016

Game the Swamp tax cut while regulators jam the markets


Corporations currently pay 35%. Trump has said he would cut it to 15%, and eliminate most business deductions. LLCs, partnerships and S corporations would have changes too, possibly even paying the same 15% rate as corporations! Of all the proposed tax changes, this one seems the most unlikely. It could mean someone taxed on flow-through business income at 39.6% or 43.4% could see their tax rate slashed to 15%! But if even half of these changes are passed, consider selling assets or collecting big pay in 2017 if you can.If you sell in December, it is 2016 income, taxed at 23.8%, 39.6% or even 43.4%. If you sell in January, there’s a good chance you get lower rates. It is standard to defer income and accelerate deductions. Even if rates are unchanged, selling in December means taxes in April. Selling in January means taxes the followingApril! All the more so this year. In fact, some taxpayers who ink a deal in 2016 may call for proceeds in 2017. Just be careful how you do it.Conversely, if you have losses, they may be worth more in 2016. So consider selling losers now. Deferring income—pushing it off into the future—requires care. Many employees may not be able to do this, but business people can. You can be slow with billing and collection. Businesses, too, should accelerate deductions and defer income. If a business needs equipment, buying in 2016 is probably smarter than in 2017.

Jam the tax collector, but current tax receipts then rop, interest payments go up with greater volatility. Then in January, the budget uncertainty is much larger than anticipated, the tac cuts get delayed, wash rinse repeat.  We get jammed, government shuts down.

Can the financial market handle disruptions in the government budgeting? No, says the BIS in a few reports, including this on the jammng effect of government regulations.

Market s have loops; so when government regulations are expensive, market pools internalize trading, obscuring it from government transaction taxes.  The extra transaction costs imposed by government thus reduce traffic in the trading pits, pricing is not as elastic, we get a dimensional collapse in the probability surface, a crash:

Shrinking FX market could pose stability risk: BIS

BIS said the main driver of this had been a fall off in trading by hedge funds and other speculative investors, which they said had been pushed lower by the closure of some bank prime-broking businesses and trimming of others.Prime-broking refers to the arrangements by which banks provide trading lines and the credit that speculators use to make big leveraged bets on currencies.
BIS also warned about risks from the market's major banks, as well as a new breed of non-bank electronic traders, raising the amount of flow that is "internalized" - i.e. matched off to other orders internally rather than traded with another party.It said that also came with a weakened role for anonymous trading platforms like those run by Reuters News parent company Thomson Reuters (TRI.TO) and ICAP-owned EBS Brokertec (IAP.L) in favor of direct relationship based trade.That, and the role for non-bank players who may not absorb as much risk when markets are volatile, may be contributing to flash crashes like those seen on sterling and other markets in the past couple of years.
"While relationship-driven ... trading... delivers lower spreads in stable market conditions, its resilience to stress may be tested going forward," BIS said. "There are also indications of rising instances of volatility outburst and flash events." 

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