How Recent Tax Law Changes Will Destroy Your Wealth (Unless You’re Already Rich)

It started with a simple request for an update to my personal net worth.

Over the years I’ve been mum about the subject, only exposing myself due to the Rockstar Finance Net Worth Tracker. I’m still undecided about discussing my *exact* net worth publically. It’s really nobody’s business and is only public because I write a personal finance blog.

(As an example: Recently I was told point-blank if this blog failed it would be no big deal since I could always do something else and I’m already rich enough. This remark was a jab at the hopeful opportunity to watch something I enjoy crumble. If I really felt that way I would never have started the project.)

The reader kept the emails coming fast and furious when I dodged the net worth question. I had a duty, I was informed, to share my personal life — details and all — since I was a business owner and have a semi-successful blog.

There was a hint of humor beneath the requests so I delayed blocking said intruder. Eventually we started a civil dialog with some serious questions about the current tax law and how it might ripple through the economy.

A week ago I was working in the barn and began formulating a post using many of the questions my intruder asked. I worked myself into a frenzy until it started coming out as a rant. I went to the house and took notes on all the topics I wanted to cover.

So this is it. I promised my intruder a nice post covering a large portion of his questions he had surrounding the TAX CUT AND JOBS ACT. Some of this is tongue in cheek so don’t take this post as hard and fast predictions of the near future.

Then again, I do have a point.


Doubling the estate tax exemption is industrial strength stupid. All this worry about farmers and small businesses losing a lifetime of work due to estate taxes is the dumbest thing ever thrust upon the people.

With the old tax law only a few thousand estates were subject to the estate tax in any given year. Now even fewer will pay the tax.

You can count the farmers subject to the estate tax on your fingers with fingers left over! Some small businesses pay an estate tax, but even that is rare.

What the adjustment to the estate tax did was line the pockets of the uber-rich!  Even this blog with a very wealthy readership will not have much to worry about when it comes to estate taxes!

It’s time to stop calling the estate tax a death tax. It’s not a death tax; it’s a welfare tax!!! We keep hearing politicians complain about welfare draining the public coffers. Well, the estate tax is the biggest welfare tax there is.

I see some raised eyebrows. Let me explain. The estate tax is not a death tax; it’s a welfare payment to all the people getting a free ride due to the genetic lottery.

I don’t care what they do to the estate tax personally, but stop calling it what it’s not!


No amount of tax cuts will offset the accelerating wealth accumulation at the top. As the top keeps more due to lower taxes there is less available to spread around to the middle class. The middle class pie gets smaller and smaller as the middle class gets squeezed like never before.

Tax cuts don’t trickle down. And stop with the politics. If trickle down worked it should have leveled some of the income inequality by now. Remember, President Reagan came up with the idea back in 1981.

Tax cuts can stimulate the economy, however, and have been used as a tool to spur the economic growth on a regular basis in the past.

The latest tax cut is a bit weird. Normally the government lowers taxes to encourage economic growth when the economy is sputtering or in recession. This time we spiked the Kool-Aid after six or seven years of modest economic growth.

Cutting taxes with unemployment at a 4-handle (unemployment is 4 point something percent) could actually harm the economy as interest rates and inflation could accelerate destroying any gains from the tax cuts.

Time will tell.

The labor participation rate will collapse if a technical corrections bill doesn’t fix the myriad problems with the latest tax bill. Savers will be able to exit the workforce faster and the FIRE (financial independence/retire early) movement will make it easier than ever for people to check out early, further exacerbating the labor shortage.

Also, the tax code now punishes added payroll expenses significantly since if you didn’t spend on payroll the extra profits are barely taxed (big corps) or you get 20% of profits as a deduction without spending a penny (small business and landlords).

There is no doubt in my mind any increase in the labor participation rate will be short-lived. Also, businesses are more incentivized than ever to lay off workers at the first hint of slower demand.


Automation is cheaper than ever with bonus depreciation increases. Include the 20% business income deduction and I foresee plenty of staff reductions.

The automation was coming regardless. Now we don’t have time to adjust as the changes will come faster. Once installed the jobs are gone forever.

Major corporations will benefit most as the cost benefit calculations will favor more automation up front. Wal-Mart is a perfect example recently announcing a few bonuses and a higher internal minimum wage while experimenting with over 200 of their stores by replacing all cashiers with automation. Total payroll expenses to Wal-Mart will probably fall. So much for their altruism.

Don’t be fooled by the token pay bonuses either. Many companies are giving a one-time $1,000 bonus to select staff. This is less than a 2% temporary pay increase. If you paid attention, many of these companies announced a few days later layoffs which will reduce payroll by more than the bonuses.

Big business and the very wealthy know exactly what they’re doing (to you).

Now we get to my net worth. Know this, your favorite accountant will do rather well in this environment. Complex tax laws are always good for people with tax knowledge and a pulse.

We came into this story talking about a certain someone’s net worth. Here I confess I might have adlibbed a bit. The issue was net worth, but more to the point, how much was I going to haul home with all the tobacco company shares I own?

It’s true I own a lot of shares in tobacco companies. Unfortunately only my Altria shares will benefit from the tax cuts. Foreign tobacco companies — Phillip Morris International in my case — will not see a benefit from U.S. tax rate reductions for corporations since they derive all their profits outside the U.S.

This led to a discussion on how many shares of Altria I own. Ah, a lot.

Let’s look at what Altria might do to my net worth. The tax reduction could increase their reported earnings by about $2 per share from the tax reduction alone. Assuming a 10 P/E ratio this will eventually be reflected in the stock price increasing $20 per share. Bad news, kind readers. A twenty dollar increase in MO’s share price will get me a bit more than two-thirds of a million only.

Altria also likes to distribute about 80% of profits to shareholders. Currently MO pays 66 cents per share per quarter or $2.64 annually. Eighty percent of an additional $2 profit increase due solely to tax reductions is $1.60 extra per share per year for me (my favorite person) in dividends.

Your favorite accountant expects the tax reduction for Altria to add a bit north of $50,000 per year to his pocket on top of the current dividend. Not bad for a broke farmer in 1982.

On December 26th my net worth crossed the $14 million mark. Here, less than a month later, I reached $15 million. It took 14 years to amass the first million (age 18 to 32). Now I’m bumping off a million in less than a month. I can’t wait for the day I can brag I lost a million between sunup and sundown!

I am sooooo smart! I doubt anyone has seen their net worth climb in the current environment.

(Okay, the last part is total BS. I didn’t add my stuff up the day after Christmas. A back of the envelope calculation says I’m getting close to $15 million, however. Yes, even your favorite accountant can’t resist looking as his stash when it’s growing so fast. I keep reminding myself, “This too shall end.”)


This tax cut is different than the 1981 cut. Inflation and unemployment were double digits back then; now we have inflation and interest rates near zero with a 4 and change unemployment rate. Dropping a line of crack will not solve a meth heads issues! Stimulating an economy after 7 – 8 years of modest growth with the labor force fully or nearly fully employed is asking for problems.

At least I’ll be okay. I’m not so sure about you.

I could offer solutions, but there are none I can think of. There will be pain a head. You might want to keep that job for a while and eliminate debt. (Always eliminate debt.) For a few years (as long as the economy holds) it will be easier than ever to build a significant net worth and retire early (if that’s your goal).

Don’t worry. The government will print and borrow enough money to fund the upcoming inflation tax.

This entire post is opinion, of course. Many of these questions have come up again and again so I feel it is easier addressing them here for everybody to enjoy, ahem.

If any of these predictions comes true I take full credit.

If I’m off, let it be known I was only predicting the future and we all know the best we can do is guess at the future.


(Note: The light-hearted nature of this post is due to the flu epidemic affecting the nation. Some people are down and out. Your favorite accountant has been only modestly lucky so far. Some days I feel great only to spend several days so tired and exhausted I can barely think. Since I’m writing at a down point I felt it best to leave the serious discussions for a day when my head doesn’t feel like a balloon. There are actually people who follow my advice! Best to assure the advice has a reasonable chance of being right.)

Keith Taxguy


  1. Dave on January 22, 2018 at 9:03 am

    Great article!
    Def a lot of fuzzy math going on with the tax cut, but then again who can say no to keeping more of your own money…
    For someone sitting on a bunch of cash, looking for some passive income, would you suggest adding Altria this month? Asking for a friend…

    • Keith Schroeder on January 22, 2018 at 9:18 am

      Remember, I said tongue-in-cheek, Dave. (For the record, I like tax cuts.)

      As for MO, I don’t add to my position unless it yields over 4% (currently ~3.7%). Same applies to PM (yielding ~3.91%). I refuse to invest based on economic outlook or tax issues. The tax cut is a one-off advantage to big corps. Real growth is how value is created.

      I’m not real excited about investing new cash right now. It’s kind of like the Warren Buffett adage: Be fearful when other are greedy and greedy when others are fearful. Greed is running rampant right now and I’ve seen this behavior before. I’ll sit tight until I see blood in the streets (another adage).

      • Dave on January 22, 2018 at 10:03 am

        I’m in the same boat as far as adding investments. Still plugging away dollar cost averaging into a couple low cost funds from Vanguard. I’m a big rental property guy who loves passive income but most of the stuff near me requires big money up front with really little in return. Paying down debt and hard money lending are the only things now that really seem to pay me well in my findings….

        Appreciate the feedback and your articles as always!

  2. WealthyDoc on January 22, 2018 at 12:09 pm

    15M. Wow. Congrats. It is amazing how easy the growth gets after awhile. The saying “the first million is the hardest” is a little obnoxious, but so true. I didn’t submit my net wealth to Rockstar. I would be near the top but behind you for sure. My wealth didn’t come from my blogging so I didn’t think it would be relevant.
    There is a lot of “corporate welfare” built into our system. Between lobbying and tax abatements, deductions and reduced capital gain rates. It is hilarious to hear politicians decry some poor single mom who relies on SNAP to feed her kids.

    • Keith Schroeder on January 22, 2018 at 12:21 pm

      Doc, I didn’t make my money blogging either. The interesting part is when the number gets big enough a market rally piles on a lot of new net worth quickly. Of course, as I said, the day will come when a “normal” correction will be a serious decline in the net worth calculation. A 10% pullback now is well over $1.5M off the top; a bear market (20%) is at least $3 mil. And one of those gut wrenching declines of a third or more will nick me temporarily for a cool 5 big ones. It’s been good for so long I wonder how my stomach will handle a $5 million haircut. I’ll probably start drinking again or at least stop eating out to preserve resources. 😉

  3. Jim on January 22, 2018 at 1:15 pm

    I am one of those “farmers you can count on one hand with fingers left over.” During the last government shut down we were looking at the estate tax being bumped down to 1 million on farms, and my family spent thousands paying attorneys and accountants, like yourself, trying to figure out a way to keep the government from stealing our land. Our farm has been in the family for 4 generations, and my grandmother was literally on her deathbed during the shutdown and passed away 2 months after the shutdown was resolved. Point is that this law does effect people, and just in my family it effected myself my wife, my child, my sister, mother, father, uncle, 2 cousins, and aunt directly as well as our extended family, far more people than you can count on both hands… My family was a bunch of farmers and teachers, how were we supposed to come up with 55% tax due when my grandmother passed away? Well sell it to somebody with a net worth of 15 million of course, somebody who had the cash to make the purchase, and at a discounted rate because it would be a fire sale since we would have owed the IRS over 1.5 million dollars….. Why do you think family farms are failing and getting gobbled up by major farming corporations? Thankfully now due to this new tax legislation, we don’t have to worry about this anymore. We don’t have to spend thousands on lawyers, accountants, timber cruisers, surveyors, and the list goes on, to try to keep what is rightfully ours, what we worked so hard for generations to accomplish. I think your problem is you have been at the top too long and have forgotten where you came from…

    • Keith Schroeder on January 22, 2018 at 1:28 pm

      Jim, I live a half mile from one of those factory farms and grew up on a family farm. The estate tax isn’t the reason most family farms are disappearing, including my family’s. In 2016 (the latest year records are available) only 3 farms paid any estate tax. The real problem is the factory farms now pay less in tax than family farms (21% versus 29.6% top rate). Another solution (which I prefer) is to exempt farms owner with fewer than say 20 people (not entities). Under the old tax law a married couple could send over $10 million to the next generation; now it’s over $22 million if adequate estate planning is ensued.

      The big problem farms have is the value of land. Many farmers are land rich and cash poor. I think my solution is better than a broad tax cut to the 1,000 people who control over half of all the nation’s wealth while fewer than 15% ever earned a penny of that wealth (think the Sam Walton family).

      I always forget when I write in my rural farm living room that real people will read what I write. My guess is a Walton family member is sure to let me have it with both barrels since I singled them out. But Jim, I think you know what I mean.

      • jim on January 22, 2018 at 3:58 pm

        Agreed, especially on the land rich, cash poor. We could have worked our whole lives and never had enough money to pay the taxes, and why would we? So we could have the exact same thing happen 20 years later when I passed and left the land to my child? Why not just sell it on my own terms for the 3 million its worth versus having to sell it for half that at auction if there was even a buyer? The last two land auctions I went to (foreclosures) didn’t even meet the minimum bid requirement the bank wanted… I agree with your proposal. You should run for public office and fix the insanity.

        • john on January 24, 2018 at 1:31 pm

          Not that I’m sympathetic to the death tax, but I’ll never understand why family farms are considered such a sympathetic victim. Many (most?) inheritances triggering the estate tax are likely to be family businesses. If farms are particularly hard hit, it’s because farm owners tend to be wealthier than average. If you have a business worth $20M, and suddenly owe a $10M tax and you are not liquid, your options are to sell the business (or a portion of it) or borrow against it. Doesn’t change whether it’s a farm or a manufacturing business or a service business. You have a lot more transaction costs in addressing the liquidity issue that the law should try to account for, but the injustice, if there is any, is in having to pay the tax. Whether the tax is paid by borrowing against a farm or liquidating half of an inherited stock portfolio doesn’t seem to make much difference to me (provided the y changed the law to give enough flexibility in payment to address liquidity challenges).

  4. LARRY FRABITORE on January 22, 2018 at 9:15 pm

    Death tax is unfair no matter the amount…why is the Gov allowed to demand a good chunk of someone’s life savings? They have been taxed their whole life! And chances are, I will not have to worry about the tax…

    • joe on January 25, 2018 at 1:19 pm

      It’s not a death tax, it’s a rich kid’s inheritance tax. Dead people don’t miss their money.

      How is taxing someone who won the birth lottery less fair than taxing people who work for it?

  5. anonymous on January 22, 2018 at 11:58 pm

    Finally, someone else is speaking up (Larry F). Exactly. I don’t care if just one person is required to pay the estate tax, that doesn’t reduce its injustice. Its just stealing people’s money thats rationalized by people thinking that because they have so much, its no big deal. Total BS. If people want to donate it to charity, fine, go ahead (Gates, Zuck, Buffet), but to confiscate it is just another form of robbery. F the government. We found a revolutionary war over less.

  6. Tvot on January 23, 2018 at 8:49 am

    Well, I finally made it to the end. A lot of this tax talk is way over my head and also not relevant to my situation, but it was interesting none the less. You have made being a tax accountant seem like an interesting, fulfilling and actually exciting career path. Not that I’m going to jump into it, but some day I plan on having at least a couple investment properties, so I will definitely resource this blog then. For now, I’ll just keep reading to try to keep up.
    I’ve really enjoyed reading your stories, even though a few of them made me tear up a bit at work. Don’t worry, I didn’t get caught. lol
    I got hooked on MMM a couple years back and went through all of his posts. The difference in lifestyles between you two are pretty cast, so it’s nice to get a different perspective on FIRE. Although I lean more towards MMM when it comes to that, it’s nice to know there’s a giant middle ground where people can fall.
    I know this comment has nothing to do with this post, but I wanted to acknowledge your hard work and show my appreciation. Who knows, maybe one day I’ll have a really complex return and I’ll need to come up to have Spotted Cow or two with you.

    • Keith Schroeder on January 23, 2018 at 9:21 am

      Congratulations, Tvot! And thank you for being such a faithful reader. It means a lot to this back country blogger.

      I am well aware of the difficulty reading pure tax law so I always try to use allegory, parables (stories with a moral lesson) and similar devices to entertain the reader while educating. I’ll keep mixing it up so it’s always worth your time to stop by.

      MMM is a hell of a guy! He’s also a client (as you probably already know). We are different in our worldview. My mission is to show the differences so people don’t feel locked into one pattern. I have a new bromance where I’m learning yet another, more balanced, way to run a business and slow down some. MMM probably thinks I work too hard. Now my new mentor will build on what I learned from MMM to be an even better person.

      If you wander this way I’ll buy the suds.

  7. Michael on January 23, 2018 at 11:01 am

    I’ve never seen the estate tax as unreasonable, as long as the rates are in the range of individuals, the spouse is exempt, and there’s a semi-generous exemption otherwise. Mainly b/c I’ve never seen it as a tax on the dead person…I mean, (s)he’s dead, right? It’s essentially an efficiently-collected tax on the people “getting money”. (Efficient == collected in one place, rather than across all the receivers’ returns). Just about our entire tax system is based on paying taxes when you “get money”: wages, cap gains, interest, lottery winnings, gambling winning, biz profits, etc, etc. You “get money”, you pay taxes. Why does an entire family tree forevermore get a one-off exemption to the “get money, pay taxes” rule, that the rest of us have to play by every day? Just because it came from mommy and daddy doesn’t mean it should have some protective force-field around it…

    • john on January 24, 2018 at 1:24 pm

      The problem with the estate tax is not a problem with whether the tax is on the dead/dying person or the devisee/heir. The problem is that it taxes future consumption at a higher rate than current consumption. Whatever you think about the morality of taxing the life savings of people, it’s generally bad policy to tax future consumption at a higher rate than current consumption.

      But I do agree that politically, although it’s bad policy, they should just convert the estate tax into an income tax. Give each individual a $5M exemption or something and then tax the rest as ordinary income, or tax it as ordinary income spread out over five years or something.

      • Michael on January 25, 2018 at 12:04 pm

        “The problem is that it taxes future consumption at a higher rate than current consumption.” If you’re meaning that the estate rate tops at 40% (and has been much higher in the past), then I fully agree with you. By saying that I think the rates should be “in the range of individuals”, I’m meaning something like 20-25%…right around the range of typical ordinary-income/cap-gains. Give a 500k or 1mil exemption, tax the rest at 25%, and you’ve essentially put the heirs in at least the same ballpark as the everyone else getting a dollar in some other fashion. 0% is a whole different ballpark…

  8. RD on January 24, 2018 at 9:42 am

    I’m curious about this statement: “If trickle down worked it should have leveled some of the income inequality by now.” – why does trickle down have to affect income inequality? The statement doesn’t logically follow – if trickle down works, then income increases for everyone (everyone benefits), but it could still increase far more for the top earners than it does for the bottom earners. And indeed, many poor people today have a better lifestyle than the poor did 40 years ago (not trying to minimize the hardships, which are often very real).

    I’m nowhere near the top of the income scale myself, but I find it sad that we as humans tend to define our happiness not by our own situation but rather by how well we’re doing in comparison with others (worrying about “income inequality”). I very much doubt we’ll ever be happy by that measure (the grass is *always* greener elsewhere if that’s what you choose to focus on).

    • Keith Schroeder on January 24, 2018 at 10:01 am

      RD, trickle down should “lift all boats”, the rallying cry from the early 80s when the concept was coined. It was great in theory, but poor in practice at “lifting ALL boats”. Bottom earners haven’t kept up with inflation over the last 30 years because the top few percent are getting 80% of the advantage. Making matters worse now is that businesses are earning historically high rates of return without wage earners experiencing as much of the gain. Capital gains have been good for decades now. Very good.

      My point doesn’t preclude life being better for many more people. It is! Technology and productivity are so high we live a pretty darn good existence. Tax cuts for high incomers is a trickle down policy. The problem today is you can’t cut taxes for the poor or middle class anymore since their taxes are already near zero. The only place left to cut/stimulate is at the higher tax brackets.

      The real question to ask is: At what level will the economy keep growing without more tax cutting stimulus? The average income in the U.S. is ~ $58,000. Taxes on $58k is pretty darn small. And the rich can only spend so much so wealth will continue to accumulate upward.

      Or I could be wrong. I’m just a tax guy from the backwoods of Wisconsin. I’ve caught air swinging before.

      • RD on January 26, 2018 at 1:14 pm

        I don’t think you’re necessarily wrong on the big picture, that these tax cuts may just be pushing a string. Time will tell on that … I was mostly just nit-picking your logic. It’s theoretically possible to lift all boats and increase income inequality at the same time (which I believe has happened in the past, as I believe you do when you acknowledge that life is indeed better for many more people today), and human nature in that situation is for those lifted less to complain more despite their better circumstances. You understand human nature very well (which is why I read your blog!), so I’m interested in your take on that (but of course you’d have to agree with me first :).

        If life really is better for bottom earners today than it was 30 years ago, what does it mean to say that they haven’t kept up with inflation? Maybe inflation hasn’t adequately adjusted for technology/productivity gains? Also, most stats I’ve seen do show bottom earners keeping up with inflation, although just barely … to which I would point out that that’s ok. Why should a starting income have to outpace inflation? If a person follows the normal pattern and starts out at (inflation-adjusted) roughly the same place as their parents, as they get raises and higher incomes and reach a percentile that has outpaced inflation, their lifestyle will actually improve faster than their parents lifestyle did, and thus they benefit from “income inequality”. If they reach the very top, they’ll benefit a lot. If they only get part way there, they’ll benefit somewhat less. Either way, the stats are misleading in that they assume that someone in the lower percentiles stays there their whole career, and in most careers it just doesn’t work that way (in my experience).

        One last point to consider … tax cuts could actually encourage further investment in technology and productivity. A company like Apple that’s sitting on a ton of cash can afford to innovate and take chances. As you pointed out, gains in technology and productivity do indeed lift all boats. So even though the direct $$ may not trickle down, there are other ways in which the benefits of lower taxes (less gov’t intervention) can and do and have trickled down.

        Anyways, I may very well be wrong on some or most of this too, hopefully giving some food for thought! I’m nowhere near an expert on any of this either, and especially nowhere near your level on the effects of tax changes, but your article and your comment brought up a few questions – thanks for responding!

Leave a Comment