What could the proposed tax reform mean for you? And what does the Bureau of Economic Analysis estimate for U.S. GDP growth? Get the answers to these questions and much more in this week’s edition of the Steady Investor’s Week.
What Do Tax Reform Proposals Mean for You? – the Senate could not muster the votes needed to take any action on healthcare, so they’re moving onto tax reform. Republicans are historically more united on issues related to tax reform, so on paper the road ahead should be smoother than it was for healthcare. The divisive issue when it comes to tax reform, however, is how to pay for it. The proposed tax cuts could add trillions of dollars to the national deficit over the next decade and many of the most conservative Republicans will not go for that. Expect a contentious debate in the coming months with that issue front-and-center. Below, we take a look at some of the proposals from the White House’s outline.
On Individual tax reform:
- Goes from seven tax brackets to three: 12%, 25% and 35 percent (and gives the option for congressional committees to add a fourth rate on the highest earners).
- Would nearly double the standard deduction to $12,000 for a single person and $24,000 for a married couple.
- Increases the child tax credit to something “substantially higher” than the current $1,000 per child. Increases the income level at which the credit phases out.
- Creates a $500 tax credit for non-child dependents.
- Repeals the alternative minimum tax.
- Repeals the personal exemption.
- Eliminates most itemized deductions, but keeps those for mortgage interest and charitable contributions.
- Repeals the estate tax.
- And a major kicker for those living in states with high income tax rates, it seeks to eliminate the state and local tax deduction.
Corporate tax reform:
- Makes the top rate for small businesses 25% (currently small businesses are generally taxed at the individual level).
- Lowers the corporate tax rate from 35% to 20%.
- Repeals the corporate alternative minimum tax.
- As an incentive to increase business investment, it allows businesses to immediately write off the cost of new investments over five years.
- Partially limits interest deductibility.
- Keeps the research and development tax credit, along with the low-income housing credit.
A Shifting Stance on Brexit – Prime Minister Theresa May gave a speech last week in Florence, Italy regarding Britain’s future relationship with the European Union. In it, she shifted from an earlier stance that Britain would leave the EU without meeting its financial obligations and would restrict movement of labor completely. Now, Prime Minister, May, appears to be supporting a “softer” Brexit in which she proposed a two-year transitional period and said Britain would honor its financial obligations. The last set of talks between the Britain and the EU ended in deadlock and time is starting to run out.
Meanwhile, Europe Continues to Show Signs of Strength – economically speaking, that is. Businesses and households across the European Union are more upbeat about their prospects than any time in the past decade, an indication that the political fatigue and concerns over faltering economies is starting to fade. They also seemed unfazed by the potential for the European Central Bank to start eventually pulling back stimulus measures. The European Commission’s Economic Sentiment Indicator, which looks at business and consumer confidence, rose to 113.0 in September from 111.9 in August – that marks its highest reading since June 2007. In terms of business activity in manufacturing and services, the European PMI readings are well above the expansionary 50 mark – manufacturing soared to 58.2, new business rose to 55.6, with the aggregate composite PMI hitting 56.7 to rise to its highest level since May.
The U.S. is Growing Nicely, Too – The Bureau of Economic Analysis released their third and final estimate for GDP in the second quarter, saying that real gross domestic product (GDP) increased at an annual rate of 3.1%, up from 1.2% in the second quarter. Profits from current production (corporate profits with inventory valuation adjustment and capital consumption adjustment) increased $14.4 billion in the second quarter, in contrast to a decrease of $46.2 billion in the first quarter. In our view, investors should stay the course.
Still, staying the course for many investors can be easier said than done, especially when they start worrying about potential market volatility. With that, many investors have been asking us how they can prepare for a potential market downturn. While volatility is a normal, natural feature of equity investing, the key to preparing for it is realizing there is no way to eliminate it, but many approaches for dealing with it. To help investors prepare for a potential downturn, we have created a guide that will provide investors with tips and tricks for dealing with volatility. To download your exclusive copy, click on the link below: