Vorisek Financial Weekly Update for December 13, 2017

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Good morning!

As leaders in both the House and the Senate work behind the scenes on a long-term budget agreement, Congress did what they had to do by passing a 2-week stopgap spending bill that prevented a government shutdown at least through Friday 12/22/17.  What both parties really want is a 2-year budget deal that would set spending levels through 9/30/19, i.e., fiscal years 2018 and 2019.  Republicans want to increase military spending.  Democrats want more spending on infrastructure and health care.  While Congress debates how it should spend $4.1 trillion over the next fiscal year, equal to $11.2 billion a day, fiscal year 2018 is already 2 ½ months old (source: Congress).        

The members of the “conference committee” that will merge the House and the Senate versions of tax reform into a new piece of legislation have been identified.  Their 2-week goal (i.e., by the Christmas holiday break) is to combine parts from both chambers’ bills, a target that is complicated by the size of the group (29 lawmakers).  Representative Kevin Brady (R-TX) is the chairman of the committee (source: Congress).     

If the top corporate tax rate is cut to 20% through Tax Reform 2017, what will American businesses do with their tax savings?  Would they hire new employees and build new factories?  Would they buy new equipment in order to increase their productivity?  Naysayers believe that instead they will distribute dividends to shareholders and spend billions on stock buybacks, doing nothing to create jobs.  Most agree that if American consumers get a tax cut, they’ll spend it.  And when American businesses don’t have the goods to satisfy an increasing demand, they ramp up quickly – by hiring more employees, building more factories and buying more equipment (source: BTN Research).     

Notable Numbers for the Week:

1.     BIGGER CONTRIBUTION - CalPERS, the largest state pension fund in the country, lowered its assumed rate of return (i.e., its discount rate) from 7.5% in fiscal year 2017 to 7.375% in fiscal year 2018, a change that will increase the state’s contribution towards pensions by $521 million to $5.9 billion (source: CalPERS). 

2.     MEDICARE - The 57 million Americans on Medicare (17% of our 326 million citizens) account for 29% of our total national spending on prescription drugs (source: Medicare). 

3.     LONG-TERM CARE - 20% of Medicaid spending in calendar year 2016, i.e., 20% of $566 billion or $113 billion, paid for long-term care expenses (source: Morningstar). 

4.     NINETY YEARS OLD - 1 out of every 4 Americans who reach age 65 will live at least another 25 years to age 90 (source: Social Security).  

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