While the year ended with a bit of a flop for both the U.S Dollar and the U.S equity markets, there’s plenty to consider going into 2018, with FED monetary policy and the signed and sealed tax reform bill being key considerations for U.S households.
The good news on the tax reform bill may not be as good for some as it is for others. It ultimately boils down to which tax bracket a person falls into.
The 7-bracket structure remains intact and, while the lowest tax rate of 10% is unchanged, the other 6 tax brackets benefit from tax cuts, with the largest tax cut seen in the original $93,700 – $195,450 bracket. The income range was adjusted to $82,500 – $157,000 and the tax rate was cut from 28% to 24%.
For the average salary for 24-34 year olds, the tax rate was cut from 24% to 22%, with the income range narrowing from $38,700 – $93,700 to $38,700 – $82,500.
In addition to the single income tax cuts, there were also tax cuts for married filing jointly.
Other good news included an increase for standard deductions from $6,500 to $12,000 for single filers, from $9,550 to $18,000 for heads of household and from $13,000 to $24,000 for joint filers.
For households looking to increase disposable incomes further, the cutting of the healthcare insurance tax penalty to zero also means that an estimated 13m will be without healthcare insurance by 2027. Some may see this as a further saving, though with U.S medical costs significant, it’s advisable to make further savings elsewhere through prudent financial management.
It’s worth noting that, while tax cuts are coming in, social security is on the rise, offsetting some of the benefits.
So, with all of the confusion from tax bills now doing its rounds across the U.S, the cut in corporate tax may ultimately be the biggest winner for U.S households.
Labour market conditions are already tight, so with corporate tax rates coming at a time when business and consumer confidence is at a high and labour markets are tight, wage growth could well start accelerating through the coming year.
That will certainly add a few more pennies to the spending pot, the downside being that inflation would not be far behind and we all know that with inflation comes to a more hawkish FED.
For now, U.S Treasury yields have shown little festive spirit from the tax reform bill, with sentiment towards FED monetary policy for the coming year pinning back yields and the Dollar. That’s not great for those looking to travel overseas, but for homeowners and those looking to get on the property ladder, it couldn’t get much better.