And the winner of tax reform is…


Last week was highlighted by the release of the House Ways and Means Committee’s tax reform bill. The big winners are U.S. corporations since the proposal calls for the top tax rate to be chopped to 20% from 35%.

Most - but not all - individuals will also benefit somewhat from lower taxes. However, this proposal is already seeing pushback because of a few key elements: mortgage interest rate deduction capped to the first $500,000 of debt on primary homes, real estate tax deduction capped at $10,000, and the $1.5 trillion increase to the U.S. deficit. Because of these challenges, it is likely that nothing major happens in 2017.

The other major news last week was the selection of current Federal Reserve (Fed) governor Jerome Powell as the next Chair to replace Janet Yellen in February 2018. The Federal Reserve is our nation’s central bank.

Powell will likely be similar to Yellen in that he’ll want to raise short-term interest rates slowly if the economy is strong enough to handle it. Right now, the economy is strong enough to handle it, which is why the Fed is likely to raise short-term interest rates at its upcoming meeting on December 12th and 13th.

The strength of the U.S. economy can be seen in the economic data released last week: the economy added 261,000 new jobs in October as the effects from Hurricanes Harvey and Irma were reversed. Looking forward, more jobs should be added as the economy grows and rebuilding following the hurricanes takes place.

The unemployment rate dropped to 4.1% from 4.2%, hitting its best level in over 16 years. However, it was mostly due to fewer people looking for jobs. Nonetheless, the strength in the job market is evident.

There were also reports released on two major economic industries: both manufacturing and the services industry showed strong growth due to new orders and business activity.

The Simply Money Point

Tax reform can benefit you, but to get the most out of it, you need to make sure you have some stock exposure (assuming you can take the risk). This is because a tax cut would be an immediate boost to most corporations’ profits. Couple that with a healthy economy and companies should see higher earnings. And Simply Money Advisors believes that growing earnings will support your investments, which are a key part of your personalized financial plan.

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