Good news for corporate earnings and your investment mix


It appears tax reform will be voted on this week after a committee produced legislation that combined the different versions from the Senate and House. It's expected that President Trump will sign the bill into law once it’s approved by both chambers.

The most immediate effect is that many of you will see larger paychecks - probably in February 2018 - because less tax will be taken out. Other than that, you won't see any other changes until you file your taxes for 2018, which will be by April 15th, 2019.

The new tax bill has many changes: near doubling of the standard deductions, doubling the child tax credit, eliminating personal exemptions, a total of seven tax brackets, a maximum of $10,000 in state and local tax deductions, new home loans will only allow mortgage interest deductions up to $750,000 and home equity loan interest will no longer be deductible.

For most of you, the new tax code will probably make your filing process simpler because you’ll no longer have to itemize due to the previously-mentioned doubling of the standard deduction.

While the reform bill may benefit many people, the big winners are corporations. Not only are corporations earning strong profits today because of robust consumer spending, but they will also see a jump in profits when corporate taxes are cut. The top corporate tax rate will be cut from 35% to 21%.

Last week, the Federal Reserve (Fed), our nation’s central bank, raised short-term interest rates by 1/4 of a point for the third time this year. This was expected, and there was little market reaction. The Fed believes that in 2018 the economy will grow 2.5%, the unemployment rate will drop to 3.9%, and that they will raise short-term rates three times.

The Simply Money Point

The tax cut for corporations will push profits higher for many companies, which may make their stocks more attractive for investment. Having exposure to stocks in your investment mix will help you meet the goals listed in your personalized financial plan.

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