Trump’s TAX CUTS: The Winners, The Losers & Your Treasuries

President Trump's top six tax cut priorities, the winners, losers, and your treasuries. Hello members, super savers, and Bond Course fans. I hope you're healthy and well. It's been a busy several days with our old and new president again. Not only did President Trump announce a whopping 25% tariff on all steel and aluminum imports into the U.S. and bring back plastic straws, he also started tackling the tax cuts that he had promised during his campaign. You have to wonder when he has time to breathe and sleep. In any case, some in the industry are warning that his tax cuts could send the treasury market into meltdown. So, with that in mind, here are the three topics that we'll be covering in today's video. 1. What are President Trump's six tax cut priorities? 2. Will the tax cuts actually get implemented? 3. What does it mean for you and your treasuries? As usual, here's our front video disclaimer. For a detailed disclaimer, please refer to the end of this video. Let's dive in now, folks. What are President Trump's six tax cut priorities? Last week, White House Press Secretary Caroline Levin announced the largest tax cut in history for middle-class working Americans and laid out the eight priorities for President Trump. Six of them wide-ranging tax cuts, and two of them actually the opposite, narrowly aimed at closing tax loopholes that are usually only accessible to a small group of top earners. Here are the six tax cut priorities, which quite a few of you should already be familiar with from President Trump's campaign. Tax cut priority one, no tax on TIPS, meaning gratuities, not Treasury Inflation Protected Securities. Although I probably speak for many here in our community when I note that there is a strong case to make our TIPS, our Treasury Inflation Protected Securities, tax-free as well. Because currently, the inflation adjustment is generally taxable if the TIPS are held in a taxable account, in which case you will not be made entirely whole for the loss of purchasing power from inflation. But I digress. Let's get back to today's topic with tax cut priority two, no tax on Social Security checks. Here again, many of our diamond nest egg regulars would probably agree that there is a good case for making Social Security payments tax-free, again, as it used to be before the 1984 reforms under President Reagan, or at least to inflation adjust the income brackets, the thresholds, for when the taxation of Social Security kicks in. These thresholds have not been adjusted at all since 1984 and are now hopelessly out of kilter, as we explained in this recent video on President Trump and your Social Security. Link below in the first pinned comment for your convenience. Tax cut priority three, no tax on overtime pay. Tax cut priority four, renewing the 2017 Trump tax cuts. As many of us may remember, in his first term, President Trump's Tax Cuts and Jobs Act, or TCJA for short, set a flat 21% tax rate for corporations, where the highest bracket had been paying 39% before. More importantly, though, the TCJA lowered the tax rates for individuals across most income brackets and also increased some thresholds for when the next higher bracket kicks in. These reductions on individual income tax are set to expire in 2025. And some business tax cuts are set to be phased out by 2028, although the basic corporate tax rate will not expire, but stay at 21%. Trump now wants to make all TCJA reductions permanent. Tax cut priority five, adjust the SALT cap. SALT stands for State and Local Taxes, meaning that this provision is most relevant to people like us who live in an area with high state and local taxes. Before 2017, everyone could pay all their state and local taxes out of pre-tax income for federal purposes. Or in technical terms, they could fully deduct all state and local taxes from their federal income for tax purposes. The TCJA changed that and added a cap on how much in state and local taxes could be deducted for federal purposes. This acted like a self-tax increase and was meant to at least partially fund the overall TCJA tax cuts. The cap for the deductibility of SALT was set at $10,000 per year in 2017, which meant that even many middle class earners in a high tax state such as California, New York, Massachusetts or New Jersey now had to pay a good part of their state and local taxes out of post-tax income for federal purposes. So clearly a lot of unhappy campers in those states, yours truly included. Trump has always defended the principle of a cap on the SALT deduction, so it will most likely not go away completely, but an adjustment is clearly on the table, presumably, or hopefully, upward. We couldn't really find much concrete detail around this one, but it's clearly going in the same direction as the proposed tariffs on imports, meaning an incentive to make things in America. Now, as I mentioned before, President Trump also included two proposals that are the opposite of tax cuts and would take away favorable tax treatment for two very specific situations that are usually only accessible to top earners. First, Trump wants to close the carried interest tax loophole. Many managers of hedge funds, private equity funds or other private funds can get a large part of their often substantial compensation at reduced capital gains tax rates of no more than 20%, as opposed to paying the full income tax rates of up to 37%, not quite half, but still a sizable tax advantage. For those of you who've watched our member video on preferred stock investing basics, also linked below in the first pinned comment, the carried interest tax loophole is similar to the preferential tax treatment on some preferred stock dividends, which are taxed at the lower capital gains tax rates, rather than its ordinary income. So, carried interest. Here's how it works technically. Say that you're a hedge fund manager, private equity fund manager, or other private fund manager. As a fund manager, your compensation would often come in two forms, from an ownership stake in the fund itself, as well as from the dividends that the fund pays out to its owners. The big discussion with carried interest is this. Should you be treated like a private entrepreneur whose dividends and ownership stake in the company may be taxed at the lower capital gains tax rates, as they are today? Or should you be treated as an ordinary employee, albeit a very well-paid one, meaning that you would have to pay the full higher personal income tax rate on any dividends from an ownership stake in the fund? Now, if you've ever worked for a company that gave you stock as part of your compensation, you'll know that the latter is how stock grants to ordinary employees are normally treated. Tax the full higher personal income tax rates, not at the lower capital gains tax rates. And this seems to be how Trump wants to tax hedge fund managers, private equity fund managers, and other private fund managers as well, like employees, not entrepreneurs, meaning more taxes for the government from these folks. The second proposal that would take away favorable tax treatment for another wealthy group is elimination of tax breaks for sports team owners, or as press secretary Caroline Leavitt said it a bit more dramatically, eliminate tax breaks for billionaire sports team owners. But you kind of have to be a billionaire these days to own a sports team. I wish I had a sports team. In any case, it seems that the tax break Trump is targeting here is about the unusually generous write down rules for buyers of sports franchises. Now, write downs are a standard feature of business, and they are usually meant to compensate for the deterioration of an asset over time. For example, a business may be able to write down a truck over five years and then use the tax savings to buy the next truck, which would allow the business to remain productive, even though the old asset, the old truck is being used up. What makes this different for sports franchises is that they can write down and get a tax break on the value of an intangible asset that makes them more and more money every year, such as a TV deal that keeps on paying increasing amounts over time. So no deterioration of the asset here. Quite the contrary, which means that these sport franchises don't necessarily need help from the tax man with buying the next replacement asset. That said, the proposal to change the taxation of sports team owners is clearly aimed at a very small population and will likely not bring in sufficient additional tax revenue to make up for these other wide ranging proposed tax cuts in a meaningful way. Bringing us nicely to the next section of today's video. Will the tax cuts actually get implemented? As our diamond nest egg regulars know, President Trump will need both House and Senate approval to get his tax priorities enacted into law. And indeed, Press Secretary Caroline Leavitt ended her short interview of the administration's tax priorities by stressing Even with a Republican majority in both the House and the Senate, though, it's unlikely that Congress will enact Trump's priorities one-to-one in their current form. We expect our lawmakers to take their job seriously enough and to discuss the proposals with an open mind and not be shy about proposing changes and amendments. So as usual, when an administration sends a budget or tax bill to Congress, the direction may be more or less clear. But it's too soon at this point to predict what exactly the final law will look like. So do not yet bank on any potential tax cuts for your personal financial plans. There are also at least three complicating factors this time. First, Republicans have only a very slim 218-215 majority in the House. And Trump's preference for one big beautiful bill on everything from the border to tax reform will not make it easier or faster. And House Speaker Mike Johnson has already seen his first deadline slip. As the Wall Street Journal reports, the effort is still a long way from Trump's desk, and plans could change repeatedly before then. And of course, the changes could be both to the timeline, but also to the content of the bill. Second, let us not forget, but how can we, right? It happens practically every year or two. We're about to face one of our recurring debt ceiling and government shutdown crises, again, in the not-too-distant future. President Trump has already pushed for a debt ceiling increase back in late December 2024, but wasn't successful. And so, with no increase to the current debt ceiling of $36.1 trillion, the Treasury is already using extraordinary measures to buy some time. But this can extend the reckoning only for so long. The Nonpartisan Committee for Responsible Federal Budget estimates the current extraordinary measures will carry us to somewhere between June and August of 2025, before the U.S. government would have to enter a partial shutdown if the debt ceiling is not increased. It's too early to tell, but at this point, I would not rule out a partial government shutdown along the lines of the one we last had from December 2018 to January 2019 under President Trump's first administration. That said, my assumption, as it always has been with every administration, both Republican and Democrat, my assumption is that we will not default on our national debt. For all the reasons I've talked about many times before on this channel, with the most significant one being clearly the potentially irreparable damage to the U.S. and global economies. As always though, we'll keep watching the space here at Diamond Nest Egg and keep you posted on developments. Moving on now to the third complicating factor. Even though no one knows what the exact numbers look like, it seems clear that President Trump's tax cut priorities, in their current form, would add substantially to the budget deficit and our national debt, even if the carried interest loophole and the tax breaks for sports team owners get abolished. The Nonpartisan Committee for Responsible Federal Budget estimates the additional costs could come in at a range of $5 to $11 trillion. So Congress will need to think hard about how much additional debt our country can shoulder and whether cost cutting in other areas, such as Doge is trying to push, or additional growth from the reduced tax burden and potential deregulation, will be sufficient to bring our federal finances back into somewhat stable order. According to the Wall Street Journal, it seems that at least a part of the Republican Party is very aware of this and has begun to think about possible measures to keep costs down. Republicans eye shorter tax cut extension to keep costs down. What do you think? Can we afford tax cuts? And if so, how should we fund them? Drop a comment below and let me and the community know. So we'll leave this section of the video with a final thought. Some of what President Trump is proposing might actually not be that unpopular with Democrats after all. For example, the closing of the carried interest tax loophole is a longtime target of Democrats, as CBS News reports. And both former President Biden and former Vice President Harris had pledged not to increase taxes on the middle class, which would at least not conflict with potentially extending part of the TCJA tax cuts before they expire. Who knows? We might even see some kind of bipartisan consensus on this. Although I have to say my hopes aren't all that high. Which brings us now to the next section of today's video. What does it mean for you and your treasuries? Now, if I had to take a guess, I would say that an overwhelming majority of the super savers and super super savers watching this video would not mind many of these proposed tax cuts. After all, who wouldn't welcome a bit of relief in their wallet? At the same time, though, most of us here, me, Marcus and even our kids also own and invest in treasuries. So we know that it's imperative that our government stays solvent and avoids a default, meaning that we cannot ignore the effects that tax cuts will ultimately have on the deficit and our debt. It's really too soon to say where these proposed tax cuts are headed. Will they even happen? And if so, how much and where? How will Congress and the administration fund the tax cuts? Will cost cutting, deregulation in certain industries and an uptick to economic growth stabilize our deficit? A lot is currently happening that may bring a few sleepless nights to some of you. And yes, I do feel like a broken record. But the reality is every video or live session we do almost always ends up with more questions, which is fine. But also sometimes more worries for some in our community. Everyone's financial journey is different, but I've said it before and I will say it again. Don't make financial investment decisions that you may later regret in the heat of the battle, so to speak. Stay the course and don't change your financial and investment strategy unless you have a personal reason to do so. At the same time, and hard as it may be, sometimes you can't completely ignore what's going on either. Do follow what's happening just as you would follow the financial health of any corporation you would lend money to. But also do try to keep your emotional distance. Another famous money rule to live by. Don't get emotional with your money. And as usual, we here at Diamond Nest Egg will try to be there for you and your questions as much as we can. All right, members, super savers and Bond Course fans, I hope you enjoy this video and learn something new. And as always, if you want to learn more about bonds and how to build a stable, predictable income stream in retirement, especially while bond yields are quite attractive, then check out this video here on our beginner and intermediate level bond courses. Or come join our next live member Q&A on Sunday, February 23rd at 5 p.m. Eastern Time, 2 p.m. Pacific Time. We'll be diving deeper into this month's 2, 5 and 7 year T-Note auctions. I've linked all the details on our bond courses and YouTube Super Super Saver membership below this video for your convenience. And see you again very soon with more brand new wealth building content for your financial journey.