Trumponomy: Make the Economy Great Again?

Income Tax Cuts
Republicans want to simplify income tax brackets from 7 to 3 and allow everyone to pay less. It could be like an economic sugar rush. The question is: Will it turn into enough growth that it will help not hurt the national debt?

Corporate Taxes
Currently at 35 percent, a drop to 15 percent could be a shot of adrenaline to profits (according to The Wall Street Journal, with deductions, companies average 29 percent). There is also a plan to help corporations bring cash home from overseas. Do companies boost productivity or just spend on dividends and stock buybacks? Good for investors either way, but long-term we need productivity.

Infrastructure Spending
Trump promised a $500 billion stimulus, but more debt isn’t popular. Implementation will take some time and the actual budget may be smaller than promised (unless President Trump gets support from Democrats who have been working to pass infrastructure stimulus for years).

U.S. Debt
Americans are not watching this as closely as they were a couple years ago, but our debt is about to reach $20 trillion. If we ignore it, interest rates will rise and our debt will only get worse–Time to balance the budget?

 

Make Markets Great Again?

Happy New Year Dear Friends and Financial Partners!

With the new President of the United States, namely Donald J. Trump, substantial changes may be coming our way. Below is a compilation of optimistic perspectives on the incoming administration.

Corporate Tax Cuts: Maria Bartiromo of Fox Business Network posed the following question to House Majority Leader, Congressman Kevin McCarthy, (R-CA). Maria Bartiromo: “One of the analysts that I had on the morning show the other day on Fox Business Network said, ‘A drop in the corporate tax rate from 35 percent to 15 percent will equate to a 20 percent increase in corporate earnings.’ Do you agree with that?”

Congressman Kevin McCarthy: “I do agree… and when you look at what we’ll do in the House, our number one focus is jobs. We need growth in America. Growth in America will solve so many problems. You won’t be able to stop this deficit unless we grow” (Sunday Morning Futures with Maria Bartiromo, December 11, 2016, Fox News Network).

Tax Repatriation Plan for Cash: Many corporations have chosen to keep their foreign profits overseas rather than pay the U.S. corporate tax rate–one of the highest in the world. Bringing these funds–estimated to be $2.6 trillion–back to the United States with only a 10 percent tax payment versus the current 35 percent rate could create hundreds of thousands of jobs. But its impact totally depends on how the money is deployed.

On Bloomberg Television, Goldman Sachs Senior Investment Strategist Abby Joseph Cohen addressed the repatriation of cash. “In 1999 and 2000, 70 percent of the cash, by companies in the S&P 500, went back into the company for things involving growth: capital spending, R&D (Research and Development), even cash acquisitions from operating assets. That 70 percent number is now 42 percent.

“If that money comes (back to the United States) and there are no restrictions in terms of how that money is used, one of the things I worry about is a good deal will go for… share repurchase alone or dividend increases, and so on, and not into growth, the benefit to the nation will not be there.”

Regulatory Environment: American businesses claim to be smothered by new rules and regulations, thus holding back Gross Domestic Product (GDP). Congressman Kevin McCarthy: “The Obama Administration has just put all of these new regulations on us, kind of just pushed the economy down, pushed investment out. Why? Because the new people being hired were hired to carry out new regulations, instead of more output.

“The Obama administration, in just the first six years, proposed more than 500 major rulings. And this is really important because you do not become a major ruling unless it gets scored that it’s going to cost $100 million (or more) to business” (Sunday Morning Futures with Maria Bartiromo, December 25, 2016).

In 2017, we may see common sense changes in the law that will create greater check and balance among the branches of our Federal Government. The Regulations from the Executive In Need of Scrutiny (REINS) Act states that no major ruling of new regulation that costs more than $100 million can be imposed without a passage of the House and Senate. The Sue & Settle Reform states that you cannot have a new regulation until any previous lawsuits are settled.

Economic Growth: Abby Joseph Cohen: “GDP growth in the United States is very likely up 2.2 percent, something along those lines. If we look for ways in which that number would be wrong, it’s probably more likely to be stronger, rather than weaker, in part, because the economy is ending 2016 on an accelerating note.”

Know this, what presidents propose and what actually takes place may be two different things. President Obama had this to say about our next president: “I…think that (Trump) is coming to this office with fewer hard-and-fast policy prescriptions than a lot of other presidents might be arriving with. I don’t think (Trump) is ideological. I think ultimately, he is pragmatic in that way. And that can serve him well as long as he has got good people around him and he has a clear sense of direction” (November 14, 2016).

At Smedley Financial we have only been able to harvest what the stock market is willing to deliver. If the market gives a little more to your portfolios then you will be closer to reaching your financial goals. To us, investing is about meeting your personal financial goals in a careful and prudent manner, and not necessarily meeting or beating a benchmark.

Finally, the most important thing to remember is this: Always call us if you have any questions or concerns. We mean it. Don’t be hesitant to contact us. We are your financial advocates and financial bodyguards.

Have a Most Prosperous New Year!
Roger M. Smedley, CFP®
President

Election Impact

President-elect Donald Trump made a lot of promises to Americans on the campaign trail. Yes, he proposed building a wall on the Mexican border and blocking certain groups from immigrating to the United States, but none were more important to voters than how the candidate would impact their money.

Trump believes his economic plans will double U.S. growth, which is currently at 2.9 percent. He plans to focus on cutting taxes for the rich, increasing government spending, and negotiate better trade deals with foreign countries. If necessary, he has even suggested imposing tariffs on imports of goods to the United States.

Republicans will control the Senate and House of Representatives, so the next president may find it easier to get things done, especially at first. Here are a few of the promises made during Trump’s campaign.

Jobs

The foundation of the United States is firm and its economy is strengthening. Unemployment numbers cannot get much better than current levels. Wage growth may be a more valuable measure of economic health. Infrastructure spending of $500 billion may help by boosting productivity of Americans in the long-term.

Education and Family

  • Require paid maternity leave for 6 weeks.
  • Make child care expenses tax deductible.
  • Allow “dependent care savings accounts.”

Healthcare

    When it comes to healthcare, any president faces an aging population and rising costs of new medical technology. Trump plans to repeal the Affordable Care Act and replace it with something different.
  • Make health insurance premiums tax deductible.
  • Encourage health insurance to be sold across state lines (something already allowed by federal law).
  • Allow imports of foreign drugs where prices are cheaper.

Taxes

    Trump has proposed many changes to the tax code. The greatest impact will be on the top one percent of earners who are estimated to save about $100,000 in taxes every year.
  • Increase the standard deduction to $30,000 for joint filers from its current level of $12,600.
  • Eliminate the personal exemption of $4,050 per dependent that parents use.
  • Eliminate estate tax.
  • Eliminate alternative minimum tax.
  • Lower corporate tax to 15 percent.

Investments

In the coming months very little should change. Increased government spending on infrastructure combined with tax cuts roughly the same size could boost growth in the coming year or two. It would also increase the national debt significantly. This could depress the value of existing bonds as interest rates rise on U.S. debt.

If we raise tariffs and other countries do the same then global trade could decrease and the cost of goods could rise. Less trade would also decrease profitability for U.S. exporters. This could even cost workers their jobs.

Our advice? Vote with your ballot, not your portfolio. Think of all the missed opportunity if one withdrew whenever there was uncertainty. Whether your favored candidates were elected or not, we want to reinforce the importance of sticking to your long-term plans.