Tag Archives: U.S. tax code

Two years in, Trump holds stock market bragging rights

U.S. President Donald Trump speaks at a campaign rally on the eve of the U.S. mid-term elections at the Show Me Center in Cape Girardeau, Missouri, U.S., November 5, 2018. REUTERS/Carlos Barria  

By Noel Randewich

SAN FRANCISCO (Reuters) – U.S. President Donald Trump has taken credit for the stock market’s gains during his nearly two years in the White House, and those claims are reasonable given the impact of tax cuts and pro-business policies on investor sentiment.

The S&P 500 has risen 28 percent since Trump’s election in November 2016 to the eve of congressional midterm elections on Tuesday. This surpasses the market’s performance over the same time frame under any other president in the past 64 years. Under President Dwight Eisenhower, the S&P 500 rose 29 percent from his election in November 1952 through November 1954.

Sweeping corporate tax cuts, an initiative driven by Trump, supercharged U.S. companies’ earnings and helped lift the cash-rich technology sector. The Republican party last year passed the biggest overhaul of the U.S. tax code in over 30 years, boosting U.S. corporate earnings.

Still, other sectors that could have been expected to benefit strongly from a Trump presidency have lagged. Indeed, the individual stocks that have gained and lost the most during his reign have little discernable link to Trump’s presidency.

How the market shakes out in the final two years of Trump’s presidency will probably be influenced by Tuesday’s elections. Analysts expect pressure on stocks if Democrats gain control of the House of Representatives and a sharper downward reaction if they sweep the House and Senate.

On the contrary, if Republicans hold their ground, stocks could gain further, with hopes of more tax reform ahead.

Trump’s strong stock market record has been maintained even after a recent pullback on Wall Street as worries about trade battles, inflation, and rising interest rates have increased caution among investors. Starting in 2010 under President Barack Obama as the world recovered from the financial crisis, the S&P 500 has enjoyed its longest bull market in history.

With more than half of Trump’s presidency still to come, how the market will perform over his whole term is unknown. Democratic President Bill Clinton saw the S&P 500 triple during his two terms in the White House.

Average S&P 500 company earnings per share are on track to rise 24 percent this year, the strongest annual gain in eight years, according to IBES data from Refinitiv.

Investor confidence stemming from the tax cuts and Trump’s other business-friendly policies so far have more than made up for ongoing worries on Wall Street that his trade conflict with China is hurting the U.S. economy, and that it could become worse.

The tax cuts also led Apple and other multinationals in the technology sector to repatriate billions of dollars in profits held overseas, some of which went toward buying back stock and sending Wall Street higher.

The S&P 500 information technology index has gained 51 percent since Trump’s election. Financials, which benefited from Trump’s deregulation of the banking industry, have climbed 34 percent since Nov 8, 2016.

Still, some companies that had been expected to boom under Trump have fared poorly. The S&P 500 energy index is flat since Trump’s election, even though crude prices rose over 50 percent during that time and despite Trump putting the brakes on Obama-era policies aimed at reducing the country’s reliance on oil.

Semiconductors have fared better than any other industry group, even though they are highly exposed to China and could become casualties in Trump’s trade war with Beijing.

Along with telecommunications, food and tobacco companies, automakers on average have fared worst among 27 industry group’s since Trump’s election. General Motors Co and Ford Motor Co have been wrestling for years with tepid global demand, with recent signs of a deep slowdown in China.

Industry groups are more detailed categories than the 11 sectors widely tracked on the stock market.

Interest rates, economic growth, company earnings and inflation are widely viewed as strong influences on stock prices, making who holds power in Washington just one of many factors affecting investor sentiment.

Abiomed Inc, the S&P 500’s top performer since Trump’s election, has jumped over 260 percent, helped in part by the success of its Impella heart pumps.

General Electric’s 68 percent loss makes it the S&P 500’s worst performer since Trump was elected. The former industrial powerhouse has foundered in several key markets in recent years and is aggressively cutting costs and selling businesses.

(Reporting by Noel Randewich; Editing by Megan Davies and Cynthia Osterman)

An update on winners and losers on the U.S. tax scorecard

A man walks the campus of the City College of New York in the Harlem borough of New York, U.S., December 16, 2017. REUTERS/Eduardo Munoz

By Beth Pinsker

NEW YORK (Reuters) – In the lead-up to the conference agreement for the U.S. Tax Cut & Jobs Act released on Friday, there were too many moving parts for most Americans to know how it would affect them.

Until the bill is voted into law, the various provisions are still a moving target, but taxpayers now have a better sense of the real math of what it means to them.

Here is an update on what some of the key issues would mean to your wallet:

* EDUCATION

Graduate students pleaded with Congress not to adopt the U.S. House of Representatives’ proposal to make tuition waivers count as taxable income. In the end, the conference bill left that provision out.

The final bill still allows for individuals to deduct up to $2,500 in student loan interest and retains the current selection of higher education tax credits.

Teachers can continue to deduct up to $250 in supplies. Employees can still receive tuition without claiming it as income.

However, the bill changes the rules for the use of contributions to 529 college savings plans. In the past, the funds could only be distributed for higher education expenses. The final bill allows for $10,000 a year to be taken for each child’s K-12 expenses.

* CHARITABLE DEDUCTIONS

The charitable deduction was never going to go away, but experts predict many fewer people will itemize deductions under the new rules, which almost double the standard deductions and get rid of personal exemptions.

People who expect not to itemize their taxes in the future should think about making major donations before Dec. 31 to capture as many tax advantages as they can.

The compromise in the tax bill to double the estate tax exemption also would affect charitable giving because fewer wealthy people will need to donate assets to avoid going over the limit and sticking their heirs with a tax bill.

* CHILD TAX CREDITS

The conference bill settles on a $2,000 per child deduction, with $1,400 of it refundable to people with no income tax liability. The deduction is now phased out at a much higher income level.

These credits will help offset the tax bill’s removal of personal exemptions, which would hit families with children hard.

* MEDICAL DEDUCTIONS

There is good news for those worrying that the tax overhaul will do away with the itemized deduction for medical expenses.

The conference bill not only keeps the deduction, it also makes it available for expenses above 7.5 percent of adjusted gross income for the next two years, rather than the recently established 10 percent threshold.

* ALIMONY

Get ready for a flood of divorces in 2018. The final bill does away with a tax deduction for paying alimony and with the need for those receiving alimony to claim it as income, but it delays this until 2019.

Those who were rushing to get divorced by Dec. 31 can take a deep breath. But as the news sinks in, expect couples where one spouse is anticipating alimony to file for divorce sooner rather than later, or face tough negotiations on how much he or she might get.

* STATE AND LOCAL TAXES

The compromise in the final bill is that filers will be able to claim $10,000 in some combination of state and local taxes, including real estate taxes. The cap on mortgage interest was bumped down from $1 million to $750,000.

There has been a lot of worry that the proposed changes would dampen home sales because it will change the math on affordability. While the final bill ended up better for homeowners than expected, there are still lingering questions about its impact.

* BRACKETS AND AMT

For those on the lower end of the income scale, the change in brackets will probably not be top of mind, at least until the Internal Revenue Service sorts out the final tax tables and starts to adjust withholding rates, probably sometime in late winter.

Wealthy Americans are getting somewhat of a mixed bag, however. The top rate is dropping to 37 percent, but the Alternative Minimum Tax remains.

While this sounds like something to mourn, the AMT might not have as big an impact as people generally believe.

* RETIREMENT SAVINGS

When the tax overhaul process started, the way we save for retirement was on the table for big changes, including to workplace 401(k) retirement savings plans. In the end, however, Congress left it all pretty much alone.

(Editing by Lauren Young and Lisa Von Ahn)