FED RAISES RATES AGAIN:
Showing continued confidence in the direction of the economy, and in its continued attempt to get the Federal Reserve bank to a healthier position, the Fed raised its benchmark interest rate for the third time in 2017. It raised its short-term rate by one quarter of a percentage point up to a range of 1.25% to 1.5%. In the meantime, it continues to very slowly divest itself of bonds in its portfolio (tightening the cash supply ever so slightly). Over time, these two steps could lead to higher loan rates for consumers and businesses and better returns for savers. The Fed made it clear that it expects the job market and the economy to continue to strengthen. It foresees another three rate hikes for 2018. Keep in mind that next year the Fed will be led by incoming chair Jerome Powell and several new Fed board members.
A NEW TAX LAW IS GETTING CLOSER:
Both houses of Congress seem poised to pass a new tax bill. This bill has a lot of stuff in it, some not related to taxes. So, you are going to be hearing a lot as everyone begins to gain a better understanding as to what this bill does. Here are some of the tax highlights:
- There are currently seven tax brackets for individual taxpayers, and that will stay the same. The rates in each bracket will change as follows: 10% (same), 12% (lowered by 3%), 22% (lowered by 3%), 24% (lowered by 4%), 32% (lowered by 1%), 35% (same) and 37% (lowered by 2.6%). This provision will be effective beginning in 2018 and expires in 2025.
- For those who use the standard deduction, it will increase to $12,000 from just over $6,000 (individuals). This will create a lot more people filing their taxes using the standard deduction.
- Personal exemptions are gone.
- The deduction for state and local tax will be capped at $10,000 (currently unlimited).
- The child tax credit is doubled to $2,000 (children under 17) and would now be available to people making up to $200,000 ($400,000 for married couples).
- The cap on how much of a mortgage qualifies for a tax deduction is decreased from $1,000,000 to $750,000 and interest on home equity loans would not be deductible as they are now (up to $100,000). Mortgages incurred before December 15, 2017 are grandfathered.
- Most popular tax breaks seems to be surviving such as classroom supplies bought with the teacher’s own money, student loan interest and medical expenses.
- The estate tax exemption, currently nearly $5.5 million per person, would double.
- A new, slower, measurement of inflation is used, so over time, credits and exemptions will be worth less.
- The mandate to buy health insurance will be repealed.
- Capital gains taxes stay the same.
- Section 529 College Savings plan money can now be used for K-12 costs.
- Corporate taxes are lowered from 35% to 21%.
- For partners and shareholders of partnerships, LLCs and S Corporations (so called “pass throughs”), the owners who pay their share of the business’ taxes on their individual returns will get a 20% deduction unless it is a service business
FOURTH QUARTER GDP OVER 3%?:
Growth in the U.S. economy as measured by gross domestic product has been up over 3% for two quarters in a row. Will the fourth quarter come in over 3% also? Merrill Lynch says, ‘no’, that it will be 2.4%. The Atlanta Fed is predicting 3.3% growth. The New York Fed is predicting 4%.
LOWER CORPORATE TAXES, HIGHER CORPORATE REVENUE – INVESTORS LIKE THAT MATH:
With the tax bill nearing the finish line, investors traded on the assumption that lower corporate taxes would drive higher earnings and profits. The S&P 500, and other U.S. indices such as the NASDAQ Composite and the Dow Jones Industrial average, hit new record highs again.
FED RAISES RATES AGAIN: http://www.realclearmarkets.com/articles/2017/12/13/fed_boosts_benchmark_rate_for_third_time_this_year_103050.html
FOURTH QUARTER GDP OVER 3%?: http://www.calculatedriskblog.com/2017/12/q4-gdp-forecasts_15.html
A NEW TAX LAW IS GETTING CLOSER: http://money.cnn.com/2017/12/15/news/economy/gop-tax-plan-details/index.html