79111
The year may be the best time in a while to ask  for that long overdue raise.
The year may be the best time in a while to ask  for that long overdue raise.

Winners and Losers From Trump’s Tax Law

Winners and Losers From Trump’s Tax Law

What might the massive overhaul of the US tax code mean for the American economy, job growth, wages and the stock market in 2018? While it’s way too early to say for sure, some outlines are already coming into view.
In the simplest view, the new tax law will result in more after-tax income for most American households, beginning in February, when employers start using the new payroll withholding tables. Longer term, those cuts could disappear after 2025, but for 2018 at least, most workers’ take-home pay will see some increase, CBSNews reported.
According to a recently released report from JPMorgan, tax cuts for individuals in 2018 will total approximately $100 billion, and it assumes 60% of that amount will flow into higher consumer spending. The result could be a gain of 0.3% to real GDP growth in 2018. It’s possible that the economic impact could be higher, if more consumer spending leads to rising growth, increased employment and higher wages.
However, those trends could also cause the Federal Reserve to increase interest rates faster than most analysts now expect if inflation rises more than forecast in 2018. Those reactions would be a headwind for the economy. The other major leg of the tax overhaul is the reduction of the US corporate tax rate to 21% from 35%. The net benefit for businesses in 2018 is projected to be approximately $80 billion, about half of which could be spent on capital spending for new buildings, equipment and so on, and on labor—hiring new workers and raising wages. In this scenario, the other half would be spent on share buybacks and dividend increases. These benefits could add another 0.3% in real GDP growth in 2018.

  Normalizing Interest Rates
All told, the tax cuts could result in additional real GDP growth of 0.6% in 2018. With the US economy already growing at about 2.7%, this would be pushed up to about 3.3%.
As more consumer spending increases the need for more workers, US unemployment could fall from November’s 4.1% to below 3.4% by the end of 2018.
With unemployment that low, employers would face stronger competition for workers, which suggests that wage growth could finally exceed 3% in 2018 (the year may be the best time in a while to ask for that long overdue raise).
Faster economic growth, rising wages and lower unemployment would give the Federal Reserve a clearer path to normalizing interest rates. Four federal fund rate increases are possible in 2018, which would leave the fed funds rate at about 2.5% and the yield on the 10-year treasury at about 3% by year-end 2018. That would be good news for savers because as money market fund yields could exceed 2% (many are already offering yields of over 1%), with similar rate increases for certificates of deposit.
If this happens, investors should patiently hold excess cash in money market funds and wait to buy bonds. Some forecasts call for bond funds returning 2% to 3% in 2018, but it’s very possible see losses in bonds next year.

  Stock Investors
But homebuyers looking to get a mortgage would be wise to move quickly because rising interest rates could mean new mortgage rates over 5% in 2018. Also, it makes more sense to favor a fixed-rate mortgage over an adjustable rate loan at a time of rising interest rates.
The path for the US stock market in 2018 isn’t so certain. After back-to-back years of double-digit gains, stock prices are looking lofty. Also, the last 18 months have seen record low volatility with no meaningful corrections.  Still, it’s reasonable for stock investors to expect to see prices push higher through 2018. But also expect to see some choppy stock performance on the way up. It may be a good strategy to keep some cash on hand ready to invest when (and if) stock prices see a tumble. But with bonds under pressure, the “TINA” (there is no alternative) principle that worked over the last two years should continue to benefit stocks.
But when bond yields exceed 3%, and the Fed signals an end to its rising interest rate cycle, all bets on stocks and TINA are off.

  Loopholes
The tax plan that Trump signed into law last week creates one of the largest new loopholes in decades: a 20% deduction for “pass-through income”.
Pass-through income is business income that is immediately “passed through” to the owner’s personal tax return, thereby avoiding the corporate income tax. Proponents of the Republican tax plan claim the cut benefits small businesses, but that’s a red herring. In reality, the new deduction disproportionately benefits the wealthy, penalizes workers and, in part because it is so complex, will ultimately reward those who can afford the best tax advice.
The new deduction could have profound effects on the American workplace over time. It essentially requires employees—most workers—to choose between benefits such as employer-based healthcare and the deduction. By creating a strong incentive for employees to give up these benefits and become independent contractors, it could further erode job, health and retirement security.
That’s exactly the point. The new deduction could provide a small tax cut for some middle-class employees—but only if they give up their benefits, spend scarce resources on tax advice, and pretend not to be employees in the first place. In the meantime, some of the richest Americans will get richer.

Short URL : https://goo.gl/UrPrf5
  1. https://goo.gl/th1mLE
  • https://goo.gl/JJT7Zu
  • https://goo.gl/mPyJGw
  • https://goo.gl/ugycjB
  • https://goo.gl/1cU5rp

You can also read ...

In a retaliatory move, President Recep Tayyip Erdogan’s government on Wednesday announced higher tariffs on some US imports, namely on passenger cars (120%) and leaf tobacco (60%).
Turkey has raised tariffs on some US imports, including...
Moody’s Predicts Slower Fiscal Progress in S. Africa
South Africa’s fiscal consolidation will be slower than the...
Dutch Economy Strong
The Dutch economy continues to grow strongly and economic...
IFC Pledges Over $2b for Egypt Private Sector
The World Bank’s International Finance Corporation said on...
World trade volume growth peaked in January at almost 5.7% year-on-year but nearly halved to less than 3% by May.
Cyclical indicators point to slower and more uneven growth in...
Transport tickets and fuel have driven up costs for consumers.
Inflation in the UK climbed in the month of the July, as had...
Nigeria CPI Drops to 11.14 Percent
Nigeria’s National Bureau of Statistics says the consumer...
China Challenges US Solar Panel Duties
China says it is challenging a US tariff hike on solar panels...

Add new comment

Read our comment policy before posting your viewpoints

Trending

Googleplus