Vorisek Financial Corporation Weekly Market Update for November 22, 2017

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Good morning!

Tax reform legislation was passed by the House 227-205 last Thursday (11/16/17).  As the bill now moves to debate in the full Senate during the week after Thanksgiving, the Congressional Budget Office (CBO) and the Joint Committee on Taxation (JCT) will be increasingly in the news.  Both organizations provide lawmakers with cost estimates for all proposed legislation, necessary data for Congress as they draft the first significant changes to our tax code in more than 3 decades.  For the “Tax Cuts and Jobs Act,” some politicians favor the use of “dynamic scoring” by the CBO and JCT, i.e., forecasting models which take into account the behavioral impact of any legislative change.  Other lawmakers prefer the use of “static scoring,” i.e., assuming that any new legislation would have a limited effect on taxpayer behavior (source: BTN Research).          

While Washington debates the intricacies of tax reform, the IRS released data last week from tax year 2015 (note that the filing of 2016 tax returns could legally be delayed until 10/15/17 or just last month).  For 2015, taxpayers filed 150.5 million tax returns.  66% of the returns (99.0 million) paid federal income tax while 34% of the returns (51.5 million) did not pay any federal income tax (source: Internal Revenue Service).                      

Outstanding student loan debt is $1.36 trillion as of 9/30/17, an increase of $400 billion in the last 5 years.  11.2% of student debt (by dollar) is at least 90 days delinquent or is in default.  The delinquency calculation understates the actual delinquency rate since student loans that are now in deferment are treated as if they are “current” with regard to their payment status (source: Federal Reserve Bank of New York).                

Notable Numbers for the Week:

1.     GOOD RESULT - The trailing 1-year performance of the S&P 500 has been a gain of at least +16% (total return) at the end of every month this year through 10/31/17 (source: BTN Research). 

2.     MADE A LOT AND PAID A LOT - The 6.75 million tax returns from tax year 2015 that reported at least $200,000 of adjusted gross income (AGI) represent 4% of all the tax returns filed, received 43% of all AGI nationwide and paid 59% of all the federal income tax that was paid nationally in 2015 (source: IRS).    

3.     STRONGER BANKING SYSTEM - Only 7 banks have failed in the United States YTD through 11/15/17, on pace to be the 3rd consecutive year of fewer than 10 failures.  Over the 7 years from 2008-14, 507 banks failed, an average of 72 per year.  157 banks failed in 2010 alone (source: FDIC).

4.     IMPACTS JUST A FEW - The House version of the “Tax Cuts and Jobs Act” would limit the deduction of mortgage interest expense to that created by debt of $500,000 or less.  Just 7% of the 7.7 million home mortgages originated in 2016 were for loans that exceeded $500,000 (source: Inside Mortgage Finance). 

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