Birmingham, Alabama-based financial guru Jeff Roberts, who was recently named one of the top private wealth advisors in the nation by Barron’s®, came on Yellowhammer Radio to lay out the facts so people can decide for themselves.
The full conversation with Mr. Roberts can be heard on the Yellowhammer Radio podcast or in the video above, and a lightly edited transcript of his interview with Yellowhammer’s Andrea Tice and Scott Chambers can be read below.
Subscribe to the Yellowhammer Radio Podcast on iTunes. Learn more about Jeff Roberts’ private wealth advisory practice at JeffRobertsAndAssociates.com.
Scott Chambers:
On the show with us today is our local financial guru, Jeff Roberts. He’s the founder of Jeff Roberts & Associates. He and his team of seven advisors can help simplify your complex wealth management needs. They are exceptional financial advisors who have provided sophisticated financial planning and advice to high net worth clients for 131 combined years. Jeff Roberts, you’re not planning on running for Senate, are you?
Jeff Roberts:
No sir. Not any time soon. I think I’m gonna stay with advising.
Scott Chambers:
Cause if you do, we have a full bank of questions ready to go for you.
Andrea Tice:
Oh yeah. Right. We can just put you right in the loop. We’ve already had two talk to us.
Jeff Roberts:
No, no, no. I don’t want to be thrown into that mix.
Andrea Tice:
All right.
Scott Chambers:
All right.
Jeff Roberts:
[inaudible 00:00:37].
Scott Chambers:
Smart answer. Look, you always have good smart answers. That’s the smartest answer I think we’ve probably ever been given by you right there.
Jeff Roberts:
[crosstalk 00:00:49].
Scott Chambers:
Nope. I’m not running. How you doing today, Jeff?
Jeff Roberts:
Man, I cannot complain. It is a beautiful day.
Scott Chambers:
Absolutely. What a great day here in Alabama. Beautiful day to be alive, isn’t it?
Jeff Roberts:
Oh, no doubt about it. It helps when our market’s up a little bit, but, you know, we’ll see. We’re working on that.
Scott Chambers:
Yeah. That’s right. Well, you know, Jeff, with everything that’s going on in the world, there’s been a lot of talk about tax reform this year. That’s been one thing that’s been going on and on. It’s tax reform. And being our resident financial guru, I thought you might like to shed some light on the topic there, which is important to so many people, really, about tax reform. What in the world do you know about tax reform?
Jeff Roberts:
This is gonna be one of the biggest issues of 2017, and likely Trump’s entire administration. I really emphasize with clients that this is one that you want to pay attention to. To summarize it just in the easiest way to understand it, today I’m gonna try and put tax law into simple terms. The basics of understanding look at three different areas. Number one, the way it affects personal tax rates, any changes we have to personal tax rates, corporate tax rates, and repatriation. Now, in personal tax rates I’m talking about the level of taxes and the rate of taxes that we as individuals pay and families and households. Then the corporate rate is just the same thing that applied to corporations, whatever rates they specifically have to pay on their tax returns, and then repatriation, which has to do with monies that corporations earn overseas and then want to bring into the United States and the handling of those dollars. That’s a unique term called “undistributed foreign earnings,” UFE, and the handling of those dollars. That’s what repatriation’s about.
Andrea Tice:
Okay. Now, what do you think is on the roster coming up in congress for personal tax reform, since you mentioned that?
Jeff Roberts:
Well, to look at personals first, and this is obviously the one that affects most individuals. Everybody listening for the most part is thinking about it from the personal rate rather than the corporate.
Andrea Tice:
Right.
Jeff Roberts:
No one knows for sure the way is this is gonna be, but one of the things that has been proposed is there are currently seven tax brackets, federal tax brackets that apply to individuals. For example, there’s a 10% bracket, then when your income reaches a level you start paying some taxes at 15% and when your income gets to another level you start paying some income tax at 25%, 28, 33%, 35%, and the highest current federal tax bracket is 39.6% on earnings over $418,000 for singles and $470,000 for joint couples.
Andrea Tice:
Okay.
Jeff Roberts:
Point is, there’s seven brackets ranking from 10% all the way up to right at 40. Okay, now the proposals that have been discussed is narrowing those seven brackets down to just three, so that as individuals we are either paying taxes at a 15% tax rate, a 25% tax rate, or a 33% tax rate. Somewhere within there. Now, that will ideally make things simpler, because instead of having seven to kind of figure out you just have three. The way it’s set up now, and a lot of people get confused by this, is the first amount of money that you earn is always taxed at that lowest bracket. Like right now the lowest bracket’s 10%. Well, some of your money is taxed at 10, and then everything over that bracket then is taxed at 15. A lot of people think that once you’re over the 10% bracket then everything is taxed at 15, and that’s not the case.
Andrea Tice:
That’s a good thing to clarify. Because you’re right. I actually thought that.
Jeff Roberts:
That’s why they call it a marginal tax bracket system, so where some is taxed at 10 then the next is taxed at 15, the next is taxed at 25. That will likely continue, they’re just gonna narrow the brackets down. Now, when some people hear that they think, “Wait a minute. So the wealthier people are gonna go from paying 39.6% down to 33%.” They’re getting a huge tax cut. Well, keep in mind they’re likely gonna do away with things like exemptions and deductions that some of those people have that they’ll lose. Some of the details of this, basically, will get worked out obviously as they start to push the laws through, but that’s the concept is to make it simpler and cleaner and narrowed down from seven brackets to three at the personal level. It’s important to pay attention to.
Scott Chambers:
No question. Well, what about those corporate taxes? What might we see there, Jeff?
Jeff Roberts:
Aw man. This is a huge issue, and I could probably spend an entire radio show talking about this, but the first thing people have gotta understand is where we rank generally, the United States, in terms of corporate taxes. Corporate taxes … Remember how I mentioned there’s different bands there in the personal 10, 15 and that sort of thing?
Andrea Tice:
Right.
Jeff Roberts:
The same thing applies to corporations. They start at 15, they go to 25. They end up going to 39%, but the highest levels of income are taxed at 35% at the federal level. Most people typically refer to corporate taxes as being as high as 39, and that’s true at certain levels of income, but at the highest levels of income it’s 35. When you add, say, an average state tax across the United States is around 4% when you add to the federal you get close to 39.
Andrea Tice:
Okay.
Jeff Roberts:
At that rate, say 39%, the United States is the third highest corporate tax rate in the world. The highest is the United Arab Emirates at 55%. Puerto Rico has 39%, and we’re actually, it’s 38.9. so we’re among the top highest three. So it would be great if we could lower our corporate tax rate down and not just personally, but corporately as well. If we want to move to … I can’t even pronounce it. Uzbekistan or however that’s pronouncing has a corporate tax rate at 7.5%. People say, “Well, Jeff, why do we care about these corporations? They’re making all this money. They need to pay taxes.” Well, of course. But keep one thing in mind. Most of us have our money invested. You’ve got things like 401K plans, retirement accounts and your money’s invested in account where you want the markets to improve and to grow.
When corporations have one of their highest or largest line items on their balance sheet is going to pay taxes, that’s one of their biggest expenses, if they cut that down dramatically, that just means they have more money in hand to do things with, to grow, to expand, to invest, maybe to pay dividends. And that helps the market and shareholders. So it’s, think about it, just like you, if you have more money coming to your pocket and less going to the federal government, corporations operate basically the same way. So the corporate tax rates are somewhere in the neighborhood of 35 to 39, and they’re looking at bringing that down to 15% to 20% have been the different proposals. That’s a potential cut in half, which is huge. That will create potentially a massive amount of earnings or profit that companies can have and hopefully be productive with.
Andrea Tice:
Yeah. I could definitely see that. If that money goes to taxes in a corporation, it just goes out the door never to return, never to return to that corporation, but if you keep it in house it’s all gonna get redistributed that helps that whole corporation.
Jeff Roberts:
It does, and it affects you as well because if you … Think about like a company that produces widgets. If the company produces widgets, and they have a certain amount of tax bill, well, they’re gonna pass all the costs down to the consumer.
Andrea Tice:
Right.
Jeff Roberts:
Including taxes.
Andrea Tice:
Yep.
Jeff Roberts:
And so ideally if companies have lower expenses and less taxes, hopefully that could potentially mean prices could shift as well, potentially. Potentially.
Andrea Tice:
All right. Well, let’s move on to this new term that I’ve never heard before, the repatriation. Explain to the listeners what all that means.
Jeff Roberts:
Okay. This is huge, and repatriation really involves how corporations can mostly effectively bring profits that have been made overseas back into the United States, and the way the United States works right now, we kind of work on the concept of what’s called a deferral type plan, it’s a worldwide plan. Essentially the idea is that United States says, “if you make money overseas and you bring that money back into the United States, you basically pay 35% of it. So what essentially happens is companies say, “Well, if I bring that back, I’ll lose a third, up to 40%,” and so they end up keeping the money overseas held in various locations. Some of the largest corporations in the world have literally billions and billions, in some cases, hundreds of billions of dollars sitting, say, in Ireland where they have incredibly low tax rates.
So the money stays overseas and is not available back in the United States for companies to pay out dividends to shareholders or buy back shares of company stock. You’re only allowed to do that with dollars earned within the United States. So companies are limited on what dividends they can pay if they have overseas earnings and they don’t want to bring that money back here. So companies have billions of dollars overseas and the estimated number’s about, there’s about 1.2 trillion in corporate cash, US cash, held overseas. There’s a white paper done here at Ameriprise recently that talked about that. A guy name Justin Burgin, and he wrote about 1.2 trillion being in cash that’s US assets held overseas that’s just sitting there.
What happens is if they bring it back here in the United States, they’re gonna lose a third so they say, “Well, we’ll just build and do things overseas with it.” Well, wouldn’t we rather than build and do things with it here in the United States? So in the past we’ve seen the tax law change to allow a window of opportunity to bring that money back into the United States and do it at a lower tax rate to try and harvest some of that cash back in the United states, money that’s not being taxed and not gonna be taxed, because it’s gonna stay overseas. Entice them to bring them back in.
Now, we did that back in the past. Bush passed a tax law called the Homeland and Investment Act in 2004, and he lowered that repatriation tax to be five and a quarter percent. There was an estimated 800 billion dollars at the time that was overseas in cash, and about 45% of it came back. Now, that was a little disappointing of a number. They really were hoping that a lot more than 45% of the cash come back home in the United States with that low of a tax rate, but at that time they put some strings and clause on it that said, “If you’re gonna bring that money back in the United States and you’re only gonna pay 5% in taxes, then there’s certain things you can do with it and there’s certain things you can’t.”
For example, they said, “You can’t go do some executive compensation with that.” So you can’t go give all your CEO’s a bunch of bonuses. So they tried to do it the right way, which is cool, but let’s just assume hypothetically that the administration now puts in a plan that’s similar, lowers the tax rate on these dollars to come back in the United States and does it from, say, 35% to something like, in this case five or 10 or whatever it is. Well, if that money comes back, and let’s assume the same percentages, you know, half the money comes back in. Well, if you’re talking 1.2 trillion in cash, that’s 600 billion dollars that comes back in the United States.
to put that in perspective, the largest stimulus package we’ve ever seen was in 2008. Congress, basically, they approved and they passed a 700 billion dollar stimulus plan to keep the economy moving. It was a bailout you guys may remember. It cost the american tax payers 700 billion.
Andrea Tice:
Okay. Wow.
Jeff Roberts:
That’s huge. So this would be 600 billion coming back, potentially, and it doesn’t cost the american tax payer a dime.
Scott Chambers:
So bringing this all back to tax reform, this could end up being a good thing, then, if it ends up bringing the money that was expatriated through repatriation back into the country. That could be a really good thing for us.
Andrea Tice:
And we already have a record from what you mentioned of Bush that it has been done, it just didn’t, you know, they had some stipulations on it, but its-
Jeff Roberts:
It did and about half the money came back. What we see basically happening on this, when money comes back to the United States we see mergers and acquisitions occur, companies buy back their own shares of stock, which can be a positive impact. They can increase dividends. They clean up their balance sheet by paying off debt. They invest or spend the money on corporate infrastructure or technology, which all of these things can help markets. It’s a good, healthy use of dollars.
Scott Chambers:
Yeah. It’s a fascinating topic.
Jeff Roberts:
[crosstalk 00:14:29] Yes.
Scott Chambers:
Fascinating topic.
Andrea Tice:
Right. I mean, it may not be the full amount of money that went overseas, but a percentage of something is much better than zero of nothing.
Scott Chambers:
Absolutely.
Jeff Roberts:
You’re getting it. You’re getting it.
Scott Chambers:
Yeah. I find this one very fascinating. That’s why we spent a few extra minutes on it today. Jeff, unfortunately we’re late for break. Our computer’s gonna cut us off here in a moment if we don’t shut up. So if people want to find out more, because, man, this is so fascinating. How do they get in touch with you, Jeff?
Jeff Roberts:
Just reach out to us to JeffRobertsandAssociates.com or give us a buzz at 313-9150. Would love to help any way we can.
Scott Chambers:
Jeff, great chatting with you today. Jeff of Jeff Roberts and Associates. Appreciate you being on. We’ll chat with you again next Wednesday, sir.
Jeff Roberts:
See you guys.
Scott Chambers:
All right. Take care. Yellow Hammer Radio, we’re back from the [inaudible 00:15:17].com heating and air studio right after this.
