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The U.S. Budget

Rob Chrisman's Weekly Commentary


It has been a month since President Donald Trump has been sworn into office and he and Congress have begun to tackle their fiscal policy agenda. Opes Advisors thinks it’s important for our clients to understand some of these policy changes and how they believe it will affect the economy. What they believe is going to be tackled includes an increase in defense spending, the repeal of the Affordable Care Act and related taxes, Dodd-Frank rumblings, and individual income tax & corporate tax cuts. And these could impact mortgage rates.

Generally, any change to the Affordable Care Act (aka, Obamacare) is viewed as being revenue neutral and not impacting the budget much. But on the individual tax policy front, experts expect the elimination of the alternative minimum tax, along with estate and gift taxes. These are all plans laid out in Paul Ryan’s blueprint, but one can expect Trump not to use the “major tax reforms” from the plans but rather focus on tax cuts.

Individual tax cuts are expected to have a total fiscal effect on the federal government of $164 billion in calendar year 2018 although the lower tax rate could support marginal labor force growth and boost real consumer spending. With respect to corporate tax cuts, experts expect after-tax corporate profits to rise 3.2 percent in 2018, but cuts probably won’t be implemented until 2018 so there will be a “negligible effect in 2017.” Analysts have calculated that the total fiscal effect beginning next year will amount to roughly $230 billion in additional deficit spending and a similar increase in net Treasury issuance. They aren’t expecting an increase in expected real GDP growth in 2017, the effect on real GDP will take place in 2018 with an increase in the expected forecast by 0.2%.

What does all this mean for rates? Various proposals are incorporated in current mortgage rates, although when predicting the future is never a 100% certainty. And any plan that helps individuals qualify should be beneficial. Opes Advisors continues to offer some excellent rates and a wide product range for our clients – call for information on them!