Donald Trump is our President-Elect and a tidal wave of fiscally conservative change may be in store for our country. As a conservative (the less government intervention the better) , I couldn’t be more excited about the policy changes that have been promised.
My economic analysis (not a social commentary on the President-Elect):
After eight years of crawling out of the economic contagion with dismal economic growth in exchange for an additional $9 trillion in government debt we can finally look forward to a faster growing economy.
Why am I optimistic? Less government intrusiveness in corporate business and in our wallets.
It starts with fewer and lower income tax rates for individual and lower corporate tax rates. This would be a radical change! From Trump’s website:
Brackets & Rates for Married-Joint filers:
Less than $75,000: 12%
More than $75,000 but less than $225,000: 25%
More than $225,000: 33%
*Brackets for single filers are ½ of these amounts – NO MORE MARRIAGE PENALTY
The Trump Plan will retain the existing capital gains rate structure (maximum rate of 20 percent) with tax brackets shown above. Carried interest will be taxed as ordinary income.
The 3.8 percent Obamacare tax on investment income will be repealed, as will the alternative minimum tax.
The Trump Plan will increase the standard deduction for joint filers to $30,000, from $12,600, and the standard deduction for single filers will be $15,000. The personal exemptions will be eliminated as will the head-of-household filing status.
In addition, the Trump Plan will cap itemized deductions at $200,000 for Married-Joint filers or $100,000 for Single filers.
The incoming administration believes that people and corporations can make better decisions with their money than the government can. I very much look forward to having a larger paycheck (take-home pay) without even getting a raise in pay!
U.S. Corporations have always had nearly the highest tax rate in the free world. A corporate tax cut will allow business owners to retain more of their profits.
The Trump Plan will lower the business tax rate from 35 percent to 15 percent, and eliminate the corporate alternative minimum tax. This rate is available to all businesses, both small and large, that want to retain the profits within the business. It will provide a deemed repatriation of corporate profits held offshore at a one-time tax rate of 10 percent.
Corporations will decide how to redistribute that money between growing the business, hiring new people, research and development, building new facilities or paying a increased dividend to shareholders. BOOM! A pro-business economy is very exciting for new jobs and ultimately more competition for work. Wouldn’t it be great if there was some wage inflation due to the competition for labor? Median family incomes have been stagnant for many years in the U.S. This figure is a key indicator for Trump’s performance four years from now.
Goodbye Obamacare. Since it passed, premiums have skyrocketed and doctor networks have slimmed dramatically. My family’s premium with BCBS is set to go up 25% in 2017, but I’m hopeful I’ll be able to buy a catastrophic plan without all the mandatory coverage (maternity for example) I’m forced to pay for today. Don’t panic, there will still be options for sick people to get care under whatever new plan is put in place going forward.
By the way, all those newly insured people under Obamacare that receive taxpayer subsidized insurance can’t afford to pay their doctor or hospital bills with the $6,000 deductible included in their insurance their plan, so what’s the point of them having insurance in the first place if they can’t afford to pay a doctor or hospital? The alternative can’t be any worse.
I get excited about lifting the restrictions on the production of $50 trillion dollars’ worth of job-producing American energy reserves, including shale, oil, natural gas and clean coal. I’m hopeful that “private” production of alternative energy sources will be great for the economy for the long-run and be a kick start in 2017.
Increasing U.S. Infrastructure is usually code for government handouts that I am against. The proposed American Energy & Infrastructure Act leverages public-private partnerships, and private investments through tax incentives, to spur $1 trillion in infrastructure investment over 10 years. I am hopeful this will be encouraged at the private level. I’m also hopeful that decreasing governments overreaching regulations will come to a halt and quit being a business growth killer.
What all this might mean for your investments:
It’s quite possible stock and bond prices are already acting on anticipated results.
Long-term stock prices follow corporate earnings. If these changes spur an increase in profits, sooner or later stock prices should follow. Often times the expectation of corporate earning increases is enough to set off stock price increases.
A pick up in economic growth may allow for interest rates to normalize and go up from where they are today. If interest rates go up, your bond mutual funds would likely go down in price. The longer the maturity and higher duration bonds would likely see a greater decline in value. The good news is those mutual funds would also pay a higher interest rate and that would be good for the long-run. Hopefully seniors will be able to earn a few percent from a Certificate of Deposit sometime in the next few years.
Foreign investments have suffered due to a very strong dollar (great for traveling to foreign countries). The dollar’s strength tends to move up and down in cycles. We will keep an eye on this going forward.
My greatest concern is that while I expect the GDP to grow at a faster rate than it has in years, government spending needs to be reigned in or the debt will continue to rise.
My optimism is tempered by what I expect to be an onslaught of negative media coverage each and every day compounded by our soon to be former President having a voice in stopping these new policies. These will be large obstacles to Trump and Congresses’ fiscally conservative agenda.
I expect many bumps along the way and will keep an eye on all of this in 2017 and going forward.
Contact me if you have any questions, 630-942-9007.
Link to Trump’s Tax Plan Details