Heads Up!

Update on the Income Tax bill

Senate Republicans released an overview of their version of tax reform legislation on Nov. 9, and there are a number of key differences between their version and the bill under consideration in the House of Representatives.

Also on Nov. 9, the House Ways and Means Committee, after four days of debate over dozens of amendments, approved the bill on a party-line vote of 24-16. That action sends the bill to the House floor, where it is expected to be considered this week. A vote to pass the bill in the House is expected before lawmakers break for the Thanksgiving holiday on November 16th or 17th.

Many changes are expected to both versions of the legislation in the days and weeks ahead, but here is our initial take on some of the notable differences between the tax reform approaches of the Senate and the House:

  • Seven individual tax brackets. While the House bill reduces the current seven tax brackets to four, the Senate bill would retain seven brackets, reportedly with rates of 10%, 12%, 22.5%, 25%, 32.5%, 35% and 38.5%. The Senate bill’s top rate is lower than the 39.6% rate for the highest earners under the House plan.
  • Deduction for state and local taxes completely repealed. The House bill repeals the deduction for state and local income taxes, but preserves a deduction for state and local property taxes, up to $10,000. The Senate has no such provision.
  • Estate tax exemption increased, but not repealed. The House bill doubles the current $5.49 million exemption amount for individuals and then eliminates the estate tax entirely in 2024. The Senate plan increases the exemption by the same amount, but does not repeal the tax in the future.
  • Corporate tax cut delayed by a year. Both plans lower the corporate tax rate to 20%. The House does so in 2018, while the Senate version delays the tax cut until 2019.
  • Home mortgage interest deduction maintained. The Senate proposal maintains the deduction for interest paid on newly purchased homes for mortgages up to $1 million, the same as current law. The House bill proposes to cap the deduction at mortgages of $500,000.
  • Deduction for medical expenses would continue. The Senate plan preserves this deduction, which was eliminated in the House bill.
  • No changes to taxation of investment income or retirement savings incentives. As with the House bill, tax rates for capital gains and dividend income will remain the same as current law. In addition, the bill does not make dramatic changes to retirement savings. Some reports in recent days indicated that the Senate may require some or all contributions to retirement plans to be made to Roth plans, which tax contributions up front. Pressure from the public and the White House to maintain the status quo for retirement savings plans forced the House to back off any changes, and the Senate has followed suit.

Next steps

The two bills are likely to move on parallel tracks this week. The full House is expected to debate that version of the bill, with the hopes of passing the bill on the House floor on or before November 17th. At the same time, the Senate Finance Committee will consider amendments to the Senate bill. Consideration on the floor of the Senate is not expected until after the Thanksgiving break. If and when both chambers have passed their bills, a conference between the two chambers would take place to iron out differences and produce a single, consensus piece of legislation. That compromise would have to be approved by both the House and Senate before the bill could be sent to the president for his signature.

Source: Charles Schwab & Co.

Did You Know…?

Charles Schwab & Co. and Valley National want you to have the highest level of confidence when you do business with Charles Schwab. So, Charles Schwab offers you this simple guarantee: Schwab will cover 100% of any losses in any of your Schwab accounts due to unauthorized activity.

The highest levels of security are only possible when we work together. To ensure your protection under this guarantee, it is your responsibility to:

  • Safeguard your account access information. If you share this information with anyone, Schwab will consider their activities to have been authorized by you.
  • Report any unauthorized transactions to us as quickly as possible. If you suspect you are a victim of fraud, please contact us and Charles Schwab immediately at 888-3-SCHWAB.

Schwab is committed to safeguard your accounts and the privacy of your information, and Schwab will continually review their privacy policy and update them as necessary to protect you.

You do not have to do anything to get this protection. Schwab automatically provides this protection.

Here is how this guarantee works. If you suspect you have been a victim of unauthorized activity in your Schwab account, notify Valley National and Schwab at 888-3-SCHWAB immediately. Schwab will promptly review your claim and assist you in taking measures necessary to protect you from further loss. You will be required to complete a notarized affidavit of fraud and to identify items of unauthorized activity.

The guarantee applies to all Schwab Bank products (bank accounts and loans). If you suspect you have been a victim of unauthorized activity in your Schwab Bank account, notify Schwab at 888-3-SCHWAB immediately. If an unauthorized advance is made on your Schwab Bank loan account, you will not be responsible for repaying the amount of the unauthorized advance or any related interest or transaction charge.

This guarantee applies to all individual retirement accounts held at Schwab including those accounts managed by independent investment advisors doing business with Schwab Advisor Services like Valley National Advisers.  However, keep in mind that transactions initiated by Valley National Advisers, as your investment advisor, or other people to whom you have granted authority to act on your behalf are considered authorized and not covered.

The Guarantee does not apply to 529 college savings plan accounts at Schwab because the assets are maintained by or held at a third party and Schwab cannot be responsible for any failure of those third parties to safeguard your information or protect your account.

Update – Washington

The U.S. stock market has jumped since the November 8th election. We identified 4 initiatives on which the U.S. stock market is speculating to be successfully accomplished early in the Trump administration. What will happen next? It is still to be determined!

The 4 initiatives will have a tremendous influence on the “Heat Map” which forms the basis of our forward looking view of the U.S. economy. We consider the success or failure of the 4 initiatives to be “leading” indicators for the Heat Map.

Below are the 4 Trump administration initiatives upon which the stock market is speculating and what progress, if any, has been made:

  1. Tax cuts and tax reforms benefiting most individuals and businesses. SIGNIFICANT PROGRESS HAS BEEN MADE RECENTLY.  CUMULATIVE PROGRESS TOWARD GOAL: 70%

  2. Infrastructure spending of up to $1 Trillion over the upcoming 7 to 10 years. PROGRESS MADE ON TAX REFORM POINTS TOWARD PROGRESS IN THIS AREA, TOO. CUMULATIVE PROGRESS TOWARD GOAL: 25%

  3. Affordable Care Act amendment, reform or reorganization. CONGRESS HAS STUMBLED EVERY TIME IT TRIED TO ACT. CUMULATIVE PROGRESS TOWARD THIS GOAL IS 0%.

  4. Roll back of government regulations and Executive Orders considered to be difficult for businesses. ROLL BACKS HAVE CONTINUED. CUMULATIVE PROGRESS TOWARD GOAL: 50%

As the action happens in Washington on these 4 initiatives, don’t be surprised if the political “tug and pull” contest results in a wilder than normal stock and bond market.

We will continue to report in future issues on the progress on each initiative. 

The “Heat Map”

Most of the time, the U.S. stock market looks to 3 factors (call them the “pillars” which support the stock market) to support its upward trend – let’s grade each of the pillars.

CONSUMER SPENDING: This grade is a B+ (favorable).

THE FED AND ITS POLICIES: This factor is rated C- (Below average).

BUSINESS PROFITABILITY: This factor’s grade is A- (very favorable). So far, earnings reports for the 3rd quarter have been solid.

OTHER CONCERNS: The “Heat Map” is indicating the U.S. stock market is in OK shape ASSUMING no international crisis. On a scale of 1 to 10 with 10 being the highest level of crisis, we rate these international risks collectively as a 5. These risks deserve our ongoing attention.

“Your Financial Choices”

The show airs on WDIY Wednesday evenings, from 6-7 p.m. The show is hosted by Valley National’s Laurie Siebert CPA, CFP®, AEP®.  This week Laurie will discuss: “Disaster Planning”

Laurie will take your calls on this topic and other inquiries this week.  Questions may be submitted early through www.yourfinancialchoices.com by clicking Contact Laurie.  This show will be broadcast at the regular time. WDIY is broadcast on FM 88.1 for reception in most of the Lehigh Valley; and, it is broadcast on FM 93.9 in the Easton and Phillipsburg area– or listen to it online from anywhere on the internet.  For more information, including how to listen to the show online, check the show’s website www.yourfinancialchoices.com and visit www.wdiy.org.

The Markets This Week

If, as the proverb suggests, people who expect nothing are blessed because they’re never disappointed, then most of us were left hurling curses at the market last week.

The bulls, because the major indexes couldn’t build on previous gains. Anyone hoping for a quick and easy path to tax reform, thanks to conflicting Senate and House plans. And even the bears, for the market’s failure to tumble despite the ample opportunity.

And what an opportunity it was. Last Thursday, the Standard & Poor’s 500 index dropped as much as 1.1%, but battled back to finish down just 0.4%. Instead of ending the benchmark’s streak without a 0.5% decline or more, it extended it to 47 days, the longest streak since 1965.

All told, the S&P 500 declined 0.2% to 2582.30 last week, while the Nasdaq Composite dipped 0.2% to 6750.94. The Dow Jones Industrial Average dropped 116.98 points, or 0.5%, to 23,422.21.

Of course, there are plenty more opportunities for disappointment to come. Tensions in the Middle East could continue to rise. Economic data this coming week will have latest inflation readings. Earnings from retail bellwethers like Wal-Mart Stores (ticker: WMT) and Home Depot (HD) are due. And, of course, the ongoing tax saga could continue to swing the market, in what Bank of America Merrill Lynch describes as “tax reform on, tax reform off.”

Even the conventional risk on/risk off trading pattern wasn’t what you would have expected last week. Normally, when stocks and other risky assets decline, bond yields fall and prices, which move in the opposite direction, rise, as investors seek a haven from the selling. And there were plenty of reasons to seek safety last week, including the continued turmoil in Saudi Arabia and fears of a bigger war in the Middle East, notes Steven Englander, head of research and strategy at Rafiki Capital Management.

But there are also plenty of reasons to worry that the Federal Reserve will continue to raise interest rates, which would explain the 0.064-percentage-point increase in the 10-year Treasury yield on Friday, the largest since September. “The up move in bond yields looks like fears that the tightening cycle is beginning, but it’s not really consistent with regional war and oil price concerns,” Englander says.

But who needs consistency, anyway? Remember, the stock market just finished one of the least volatile Octobers on record, while September, rather than living up to its reputation for tepid returns, produced a 1.9% gain for the S&P 500. So would it be any surprise if November—usually one of the strongest months of the year—falls well short of bullish expectations? Hedge funds, says Wellington Shields technical analyst Frank Gretz, appear to have loaded up on stocks to take advantage of the 11th month’s reputation for stellar gains, something he calls worrisome. “Talk is one thing,” Gretz says. “The worry part is if everyone acts on this positive seasonality.”

(Source: Barrons Online)