Heads Up!

Why are we so closely monitoring political moves in Washington? Because staff serving on Congressional Committees, by making leaks about legislation in process, can move markets more than the FED.

The markets right now are incredibly dependent upon fiscal policy (fiscal policy is the means by which a government adjusts its spending levels and tax rates to influence the U.S. economy).

Fiscal policy is the brother strategy to monetary policy through which the Federal Reserve Bank (the FED) adjusts the U.S. money supply to influence the U.S. economy. For many years, the FED was the only game in town. Now, many believe the FED’s ability to influence the economy has withered. Maybe, just in time, the government is able to rev up fiscal policy.

Heads Up!

So many discussions are happening behind the curtains in Washington. We are not privy to these discussions which creates difficulty in forecasting whether Congress will be able to move on major legislation such as income tax reform, infrastructure spending, and fixing the Affordable Care Act. But, there is a visible indicator available to give us a heads up on how well Congress is working with the Trump administration: the Nomination process (approval or disapproval of Trump nominees for the Cabinet).

As of today, the U.S. Senate has not voted against any Trump nominee. If this trend continues, this would be a sign of the Trump administration’s success in working with Congress to push forward its agenda. We will know soon because the Senate is expected to vote on Betsy DeVos Tuesday for Secretary of Education and Jeff Sessions for Attorney General. Both are controversial nominees and their nominee votes are uncertain. So, these two pending votes are a visible sign of the working relationship being shaped.

Heads Up!

Artificial Intelligence (AI), Robotics, and Virtual Reality (VR) are 3 of the next big thing(s) during the upcoming 5 to 25 years. The winner in AI is hard to predict at this time. Robotics applications are popping up in many applications. On the other hand VR’s time is just around the corner. Here is an article from ScienceInfo.net which spells this out.

The market for virtual reality (VR) technology could be a trillion-dollar industry by the year 2035, according to new research from a forward-looking analysis unit of the investment bank Citi.

Citi’s report arrived the same week that Sony released the PlayStation VR, a virtual reality headset aimed at owners of its video game console. 2016 has seen other high-profile headsets released by competitors, including the Oculus Rift and the HTC Vive. “VR is now firmly on the radar as an investment theme and is expanding as an industry and we believe it will be used in a wide range of applications and in a number of different industries going forward,” Kathleen Boyle, managing editor of Citi GPS (Global Perspectives & Solutions), said in the report on Thursday.

In fact, VR technology is already making its impact felt in several ways, with many companies exploring its applications. Beyond gaming and entertainment, VR is being used in the tourism sector, for education and in health care. In addition, DeLoitte published a survey in August which found 88 percent of mid-market companies (firms with annual revenue of between $100 million and $1 billion) were using some form of virtual or augmented reality as part of their business.

Citi predicts hardware sales, specifically of headsets, will be the primary driver of the industry’s growth and the VR market will be worth $692 billion by 2025, rising to more than a trillion by the following decade…. and is expected to rise to $4 trillion by 2030.

All major content providers are piling into this area, and user-generated content is poised to explode as more affordable 360-degree cameras come to market,” he said in a press release in August. We envision a world where ‘surroundie’ photos and videos become the next big thing, especially as 360-degree content can be so easily shared with more than 1.7 billion Facebook and YouTube users,” he added.

Heads Up!

If you are charitably inclined and have adequate cash flow available, might it be time to put the brakes on Required Minimum Distributions taken from your IRA’s in the early months of the year?  Depending on what tax proposals eventually make it into law, those 70 ½ and older may benefit more from making their larger charitable contributions directly out of their IRA whereby that income won’t be reported on page 1 of your return. These types of charitable distributions are not deducted, therefore, on the Schedule A for itemized deductions.  With proposed higher standard deductions in the possible 2017 Income Tax Simplification, many older taxpayers won’t benefit from itemizing anymore and wouldn’t receive a tax benefit from charitable giving. If you make your charitable contributions through the Qualified Charitable Distribution (QCD) strategy, there is an opportunity to save income taxes whether you itemize or not.  Ask us for details and what you should review to make sure this strategy is available to you.

Heads Up!

The U.S. stock market has jumped since the November 8th election. Many investors are asking if now is a good time to “take profits” and sit on the side lines to wait to see what happens. But this strategy is a form of market timing.  If there is one thing we have learned from 2016 is that it is exceptionally difficult to time the market. Instead of market timing, let’s identify and track the 4 initiatives the U.S. stock market is speculating will be successfully accomplished early in the Trump administration.

If Trump administration successfully accomplishes the 4 initiatives, then the stock market has speculated correctly and could trend to higher and higher levels over the next 4 to 5 years. However, if his administration is unsuccessful in accomplishing the 4 initiatives, then stock market investors may find themselves disappointed with a correction sending shares values back down to levels witnessed prior to the November 8th election.

The outcome of the 4 initiatives have a substantial impact on the factors in the “Heat Map”

The 4 Trump administration initiatives upon which the stock market is speculating are:

  1. Tax cuts and tax reforms benefiting most individuals and businesses.
  2. Infrastructure spending of up to $1 Trillion over the upcoming 7 to 10 years.
  3. Affordable Care Act amendment, reform or reorganization.
  4. Roll back of government regulations and Executive Orders considered to be difficult for businesses.

As the action happens in Washington on these 4 initiatives, don’t be surprised if the beginning of 2017 is wilder than the end of 2016.

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

Heads Up!

Interest rates are rising! And, we suspect interest rates will rise much further. A most respected bond market guru, Jeffrey Gundlach, CEO of DoubleLine Capital and one of the world’s most successful bond investors, predicts a rise in bond yields that could lift the yield on the 10-year Treasury note to 6% in the next four or five years from its current level of 2.5%.

Trump’s pro-business agenda is inherently “unfriendly” to bonds, Gundlach says, as it could to lead to stronger economic growth and renewed inflation. Gundlach expects President-elect Trump to “amp up the deficit” to pay for infrastructure projects and other programs. That could produce an inflation rate of 3% and nominal growth of 4% to 6% in gross domestic product. “If nominal GDP pushes toward 4%, 5%, or even 6%, there is no way you are going to get bond yields to stay below 2%,” Gundlach says.

Additionally, the current FED Chairperson Janet Yellen’s tenure may end in 13 months. The new FED chair could sell, over time, the $3.5 Trillion of Treasury Bonds and mortgages the FED acquired since 2008. We reckon this will add substantial pressure to lift interest rates even higher.

NOTE: Keep in mind, rising interest rates reduces the price of bond and bond mutual fund currently owned. The longer the bond maturity, the larger the drop in price.

ACTION: Now is the time for implementing the following portfolio strategies: (1) eliminate long term bonds (over 15 years maturity) and long term bond mutual funds; and (2) reduce the holdings of intermediate term bonds and intermediate term bond mutual funds; and (3) invest the proceeds of (1) and (2) into short-term bonds.

Heads Up!

A flip-flop for those who commute across the Delaware River.  Several months ago, we informed Pennsylvanians who work in New Jersey, and vice-versa, about a change occurring effective 1/1/2017 which we thought would end the “Reciprocal Agreement”. But, last week, Governor Christie of NJ announced the change will not occur after all.  Christie’s move reverses notice he had given to Pennsylvania of his intention to end the nearly 40-year-old tax pact with the commonwealth on Jan. 1.  The agreement prevents Pennsylvania residents who work in New Jersey from paying income taxes to the Garden State and vice versa. Ending it would have forced commuters to pay income taxes to both states, with a credit against what they owe to their home state based on what they paid to the state where they work.

Heads Up!


During the campaign, Trump released an outline detailing his plans for his first 100 days in office. Within the “100 day plan presentation,” Trump listed several tax proposals to immediately work with Congress on enacting:

  • The Middle Class Tax Relief and Simplification Act—According to Trump, the legislation would provide middle class families with two children a 35 percent tax cut and lower the “business tax rate” from 35 percent to 15 percent. During the campaign, Trump described the plan as “an economic plan designed to grow the economy 4 percent per year and create at least 25 million new jobs through massive tax reduction and simplification.”
    * Click here to jump to details at the bottom of this post.
  • Affordable Childcare and Eldercare Act — A proposal described by Trump during the campaign that would allow individuals to deduct childcare and elder care from their taxes, incentivize employers to provide on-site childcare and create tax-free savings accounts for children and elderly dependents.
  • Repeal and Replace Obamacare Act — A proposal made by Trump during the campaign to fully repeal the ACA.
  • American Energy & Infrastructure Act—A proposal described by Trump during the campaign that “leverages public-private partnerships, and private investments through tax incentives, to spur $1 trillion in infrastructure investment over 10 years.”

RECOMMENDED ACTIONS: In summary, the legislative plan outlined above is good for stock prices. Not so for bonds. It is likely interest rates will rise and the magnitude of the increase could be substantial.  When interest rates rise, the value of bonds you already own go down. It is important to reduce holdings of long term maturity bonds or mutual funds which hold this type of bond.


Trump’s Win Expected to Bring Tax Law Changes


Income Tax
During the campaign, Trump proposed to compress into only three tax brackets the current seven tax brackets, which currently tops out at 39.6 percent. Trump’s proposal would reduce rates on ordinary income to 12, 25, and 33 percent.

Trump’s tax plan for three-bracket tax rate structure of 12, 25, and 33 mirrors the House GOP Tax Reform Blueprint released in June 2016. Trump has not specified the income levels within which each bracket percentage would fall.

Under Trump’s plan, the standard deduction would increase to $15,000 for single individuals and to $30,000 for married couples filing jointly. In contrast, the 2017 standard deduction amounts under current law are $6,350 and $12,700, respectively, as adjusted for inflation.

Trump also proposed during the campaign to implement a cap on the amount of itemized deductions that could be claimed at $100,000 for single filers and $200,000 for married couples filing jointly. Additionally, according to campaign materials, all personal exemptions would be eliminated, as would the head of household filing status.


One result of increasing the standard deduction would likely be to reduce the number of taxpayers who itemize deductions.

Capital Gains/Dividends
The current rate structure for capital gains would apparently remain unchanged under Trump’s plan. Trump presumably would also retain the same rates for qualified dividend income. However, Trump has proposed to repeal the 3.8 percent net investment income (NII) tax imposed on passive income, including capital gains.

Current Rates Trump/GOP Rates Joint Filers: Blueprint Single Filers: Blueprint
10% 15% 0%/12% up to $75,300 up to $37,650
25% & 28% 25% up to $231,450 up to $190,150
33%, 35% & 39.6% 33% above $231,450 above $190,150


The current capital gains rate structure, imposed based upon income tax brackets, would presumably be realigned to fit within Trump’s proposed percent income tax bracket levels.

Estate and Gift Tax
During the campaign, Trump proposed to repeal the federal estate and gift tax. The unified federal estate and gift tax kicks in at $5.490 million for 2017 (essentially double at $10.980 million for married individuals),


During the campaign, Trump also added to estate and gift tax repeal a proposal that would disallow “stepped up basis” to shelter otherwise taxable gains of more than $10 million under the income tax. Currently, any asset that passes through an estate receives a tax basis equal to date of death value, a significant tax advantage when the asset is eventually sold by heirs. Trumps plan would appear to provide exemptions for small businesses and family farms.

Alternative Minimum Tax (AMT)
During the campaign, Trump proposed to eliminate the alternative minimum tax (AMT).

National Taxpayer Advocate Nina Olson has recommended Congress permanently repeal the AMT. Although it serves as a revenue source, significant tax reform would likely present other options to offset the cost of elimination.

Net Investment Income (NII) Tax
During the campaign, Trump proposed to repeal the Affordable Care Act (ACA). Repeal of the ACA would include repeal of the 3.8 percent net investment income (NII) tax.

Childcare Tax Benefits
Trump proposed during the campaign to create a new deduction for child and dependent care expenses, as well as increasing the earned income tax credit (EITC) for working parents who would otherwise not qualify for the deduction. Trump’s plan, as explained during his campaign, would provide:

  • “Spending rebates” to lower-income families for childcare expenses through the EITC. “The rebate would be equal to a certain percentage of remaining eligible childcare expenses, subject to a cap of half of the payroll taxes paid by the taxpayer,” according to campaign materials.
  • “Above-the-line” deductions for child and elder care expenses, for qualified taxpayers with income up to certain thresholds.

Trump also proposed during the campaign to create Dependent CARE Savings Accounts (DCSAs), tax-favored savings accounts for children, including unborn children, and dependent care expenses, which would be matched by a government contribution. The savings accounts would have an annual contribution limit. Trump’s plan would also expand the credit for employer-provided child care.

Carried Interest
Trump proposed during the campaign to tax carried interest as ordinary income.


Private equity partners have been taxed at 20 percent, the current top rate for capital gains.


Corporate Income Tax
During the campaign, Trump proposed to lower the business tax rate to 15 percent and eliminate the corporate alternative minimum tax.

The top corporate income tax rate is currently 35 percent.

Small Businesses
Trump’s campaign materials about how pass-through entities (sole proprietorships, partnerships, and S corporations) would be taxed are broad-brush. Generally, Trump’s campaign materials indicate that the owners of pass-through entities could elect to be taxed at a flat rate of 15 percent on their pass-through income retained within the business, rather than be taxed under regular individual income tax rates (the top individual rate would be 33 percent under Trump’s plan).


This plan would appear to give a business quasi-corporate status in being able to be taxed at a new 15 percent corporate tax rate until assets are distributed. Upon distribution, a second layer of tax would be imposed similar to dividends now taxed to C Corporation shareholders.

Trump’s campaign materials also indicated a consideration of rules that would prevent pass-through owners from converting their compensation income taxed at higher rates into profits taxed at the 15 percent level.

Business Tax Incentives
According to campaign materials, unspecified “corporate tax expenditures” would be eliminated, except for the Research and Development (R&D) credit, in exchange for a lower corporate tax rate.

Section 179 expensing
Specifically directed toward small businesses, Trump during the campaign indicated that he would increase the annual cap on Section 179 expensing from $500,000 to $1 million.

Childcare credit for businesses
During the campaign, Trump proposed to increase the annual cap for the business tax credit for on-site childcare. Additionally, the recapture period would be reduced.

Manufacturing expensing
In lieu of deducting interest expenses, Trump proposed during the campaign that manufacturing firms would be able to immediately deduct all new investments in the business.


Trump proposed throughout the campaign to “repeal and replace Obamacare,” the Affordable Care Act (ACA), entirely, including all associated taxes. Trump’s campaign materials, however, only mention repealing the ACA’s 3.8 percent NII tax.

During the campaign, Trump indicated that he would call a special session of Congress to repeal the ACA.

Cadillac tax. Under current law, the so-called “Cadillac tax” on high dollar health insurance plans is scheduled to go into effect in 2020. Trump has not mentioned this tax specifically but repeal of the ACA would presumably include repeal of the “Cadillac tax.”

Medical device tax. As part of ACA repeal, Trump’s plan would apparently envision repeal of the medical device tax.

Repeal of the ACA would also bring about repeal of the individual shared responsibility requirement, the employer shared responsibility requirement, the Code Sec. 36B premium assistance tax credit, the Health Care Marketplace, the SHOP Marketplace, and more.


During the campaign, Trump indicated that one direct result of lowering the corporate income tax rate would be to make US companies more competitive worldwide, as well as keep US companies onshore.

During the campaign, Trump proposed to provide a deemed repatriation of corporate profits held offshore at a “one-time” reduced tax rate.

SOURCE: Commerce Clearing House

Heads Up!

TRENTON — Motorists may be fuming over having to pay 23 cents a gallon more at the pump come November, but the deal to restore New Jersey transportation funding will bring significant savings to retired residents living in the Garden State.

Legislation signed by Gov. Chris Christie last week raising the gasoline tax 23 cents per gallon included $1.4 billion in tax cuts.  That includes a five-fold increase in the income tax break for retirees. Right now, married couples filing jointly can get out of paying any state income tax for their first $20,000 in retirement income. That will jump to $100,000 by 2020.

The limit for a married couple filing jointly will jump from $20,000 to $40,000 in 2017, to $60,000 in 2018, to $80,000 in 2019 and $100,000 in 2020. For a married person filing separately, it will gradually increase from $10,000 to $50,000, and for a individual filing as a single taxpayer, from $15,000 to $75,000.

Anyone with more than $100,000 in taxable New Jersey income would have to pay the full state income tax. The tax break applies to residents 62 and older.

So, if your NJ income is over $100,000, you do not get any part of the exclusion. There is no phase-out. It is all or none.  I just wanted to make sure we were all clear on that. I am already getting calls from folks that are evaluating moving to PA, but wanted to stay in NJ because their pension was going to have this large exclusion. Not the case if their total income is over $100k.

Heads Up!

Medicare enrollees can save hundreds of dollars on premiums and out-of-pocket costs by doing a checkup on their coverage in the weeks to come. But few bother to review what they’ve got or make changes.

If you use traditional fee-for-service Medicare and have a Medigap supplemental plan–and you’re happy with what you have–there’s no need to do anything during annual enrollment. But if you have Part D prescription drug coverage, or are enrolled in Medicare Advantage (the managed care alternative to traditional fee-for-service Medicare), it can pay to kick the tires. Click here to read a comprehensive article and checklist from Morningstar.