Tax Reform Update & Investment Implications
-
bookmark
-
print
On December 15, 2017, the House-Senate Conference Committee released a reconciled version of the tax reform legislation (Tax Cuts and Jobs Act (HR 1)) passed by the House on November 16th. It is anticipated that the full House may vote on the pending legislation as early as Tuesday, December 19th, with the Senate voting later in the week. If this happens as expected, the President has indicated he will sign the legislation before Christmas.
Executive Summary
- Sweeping tax changes appear to be forthcoming for most individuals and all entities.
- A number of provisions under current tax law do not change for individuals, including long term capital gain and qualified dividend income individual tax rates, the net investment income tax for high-income taxpayers, the exemption of gain on the sale of a principal residence, and tax deferred retirement savings in 401(k) and IRA accounts.
- Specific individual effects may not be known until well after the beginning of the year.
- A “clean-up” bill is expected after the dust settles to fix certain unresolved issues within the Bill.
- The market has already priced in the majority of tax reform; however, we expect positive momentum to continue into the first half of 2018.
- The tax plan could be the right incentive to spur a business investment boom. This could create longer-term growth from productivity gains, not simply be a short-term stimulus.
- The impact of corporate tax reform will likely be felt more by smaller domestic companies. These smaller domestic companies typically pay tax rates closer to the 35% federal rate, while the average effective tax rate among S&P 500 companies is already 26%.
- Fiscal stimulus is typically enacted in times of uncertainty and market downturns. However, this corporate tax reform comes at a time when GDP growth is accelerating and the unemployment rate is 4.1%, the lowest level in 17 years.
- It is likely that the majority of tax savings will go toward stock buybacks, dividend hikes, and debt retirement, but the tight labor market may draw a small proportion of the benefit to wage gains, particularly if productivity begins to trend higher.
- The increased U.S. growth from tax reform likely will add to the global upturn that is underway. While over-heating may be an eventual concern, it is likely not a near-term concern.
Click here to read the full report from BMO Wealth Management.
Please note that this information is meant for a broad audience and is not intended to be individual legal or tax advice. You should not rely on it as legal or tax advice. Each person’s tax situation is unique and the Bill will impact each person differently. Therefore, you should discuss with your legal and tax advisors how the Bill might impact your situation and the planning considerations that are right for you.
Richard J. Kollauf, CPA, AEP®, CFP®
Vice President & Director of Business Advisory, BMO Wealth Management
On December 15, 2017, the House-Senate Conference Committee released a reconciled version of the tax reform legislation (Tax Cuts and Jobs Act (HR 1)) passed by the House on November 16th. It is anticipated that the full House may vote on the pending legislation as early as Tuesday, December 19th, with the Senate voting later in the week. If this happens as expected, the President has indicated he will sign the legislation before Christmas.
Executive Summary
- Sweeping tax changes appear to be forthcoming for most individuals and all entities.
- A number of provisions under current tax law do not change for individuals, including long term capital gain and qualified dividend income individual tax rates, the net investment income tax for high-income taxpayers, the exemption of gain on the sale of a principal residence, and tax deferred retirement savings in 401(k) and IRA accounts.
- Specific individual effects may not be known until well after the beginning of the year.
- A “clean-up” bill is expected after the dust settles to fix certain unresolved issues within the Bill.
- The market has already priced in the majority of tax reform; however, we expect positive momentum to continue into the first half of 2018.
- The tax plan could be the right incentive to spur a business investment boom. This could create longer-term growth from productivity gains, not simply be a short-term stimulus.
- The impact of corporate tax reform will likely be felt more by smaller domestic companies. These smaller domestic companies typically pay tax rates closer to the 35% federal rate, while the average effective tax rate among S&P 500 companies is already 26%.
- Fiscal stimulus is typically enacted in times of uncertainty and market downturns. However, this corporate tax reform comes at a time when GDP growth is accelerating and the unemployment rate is 4.1%, the lowest level in 17 years.
- It is likely that the majority of tax savings will go toward stock buybacks, dividend hikes, and debt retirement, but the tight labor market may draw a small proportion of the benefit to wage gains, particularly if productivity begins to trend higher.
- The increased U.S. growth from tax reform likely will add to the global upturn that is underway. While over-heating may be an eventual concern, it is likely not a near-term concern.
Click here to read the full report from BMO Wealth Management.
Please note that this information is meant for a broad audience and is not intended to be individual legal or tax advice. You should not rely on it as legal or tax advice. Each person’s tax situation is unique and the Bill will impact each person differently. Therefore, you should discuss with your legal and tax advisors how the Bill might impact your situation and the planning considerations that are right for you.
More Insights
Tell us three simple things to
customize your experience.
Commercial
Commercial
-
Who We Are
-
Industry Expertise
- Agribusiness & Protein
- Agriculture
- Dealer Finance
- Commercial Real Estate
- Correspondent Banking
- Educational Institutions
- Engineering & Construction
- Food & Beverage
- Franchise Finance
- Futures & Securities
- Governments
- Healthcare
- Manufacturing
- Metals
- Not-for-Profit Organizations
- Private Equity Sponsors
- Professional Services
- Retail & Wholesale Distribution
- Specialty Finance
- Trucking
- Dental Practices
- Fuel Services & Convenience
- Logistics, Rail and Shipping
- Technology Banking
- Wine & Spirits
- Religious Institution Banking
-
We Can Help
- Asset Based Lending
- Business Strategy
- Doing Business Internationally
- Economic Insights
- Equipment Finance
- Finance Growth
- Manage Cash Flow
- Manage Risk
- Wealth Management
- Corporate Advisory
- Doing Business in Canada
- Minority-Owned Businesses
- Mergers & Acquisitions
- Pacific Rim
- Climate Smart
- Regional Investment Banking Expertise
-
Our Bankers
- Our Podcasts
Contact Us
Banking products are subject to approval and are provided in the United States by BMO Bank N.A. Member FDIC. BMO Commercial Bank is a trade name used in the United States by BMO Bank N.A. Member FDIC. BMO Sponsor Finance is a trade name used by BMO Financial Corp. and its affiliates.
Please note important disclosures for content produced by BMO Capital Markets. BMO Capital Markets Regulatory | BMOCMC Fixed Income Commentary Disclosure | BMOCMC FICC Macro Strategy Commentary Disclosure | Research Disclosure Statements.
BMO Capital Markets is a trade name used by BMO Financial Group for the wholesale banking businesses of Bank of Montreal, BMO Bank N.A. (member FDIC), Bank of Montreal Europe p.l.c., and Bank of Montreal (China) Co. Ltd, the institutional broker dealer business of BMO Capital Markets Corp. (Member FINRA and SIPC) and the agency broker dealer business of Clearpool Execution Services, LLC (Member FINRA and SIPC) in the U.S. , and the institutional broker dealer businesses of BMO Nesbitt Burns Inc. (Member Canadian Investment Regulatory Organization and Member Canadian Investor Protection Fund) in Canada and Asia, Bank of Montreal Europe p.l.c. (authorised and regulated by the Central Bank of Ireland) in Europe and BMO Capital Markets Limited (authorised and regulated by the Financial Conduct Authority) in the UK and Australia and carbon credit origination, sustainability advisory services and environmental solutions provided by Bank of Montreal, BMO Radicle Inc., and Carbon Farmers Australia Pty Ltd. (ACN 136 799 221 AFSL 430135) in Australia. "Nesbitt Burns" is a registered trademark of BMO Nesbitt Burns Inc, used under license. "BMO Capital Markets" is a trademark of Bank of Montreal, used under license. "BMO (M-Bar roundel symbol)" is a registered trademark of Bank of Montreal, used under license.
® Registered trademark of Bank of Montreal in the United States, Canada and elsewhere.
™ Trademark of Bank of Montreal in the United States and Canada.
The material contained in articles posted on this website is intended as a general market commentary. The opinions, estimates and projections, if any, contained in these articles are those of the authors and may differ from those of other BMO Commercial Bank employees and affiliates. BMO Commercial Bank endeavors to ensure that the contents have been compiled or derived from sources that it believes to be reliable and which it believes contain information and opinions which are accurate and complete. However, the authors and BMO Commercial Bank take no responsibility for any errors or omissions and do not guarantee their accuracy or completeness. These articles are for informational purposes only.
This information is not intended to be tax or legal advice. This information cannot be used by any taxpayer for the purpose of avoiding tax penalties that may be imposed on the taxpayer. This information is being used to support the promotion or marketing of the planning strategies discussed herein. BMO Bank N.A. and its affiliates do not provide legal or tax advice to clients. You should review your particular circumstances with your independent legal and tax advisors.
Third party web sites may have privacy and security policies different from BMO. Links to other web sites do not imply the endorsement or approval of such web sites. Please review the privacy and security policies of web sites reached through links from BMO web sites.
Notice to Customers
To help the government fight the funding of terrorism and money laundering activities, federal law (USA Patriot Act (Title III of Pub. L. 107 56 (signed into law October 26, 2001)) requires all financial organizations to obtain, verify and record information that identifies each person who opens an account. When you open an account, we will ask for your name, address, date of birth and other information that will allow us to identify you. We may also ask you to provide a copy of your driver's license or other identifying documents. For each business or entity that opens an account, we will ask for your name, address and other information that will allow us to identify the entity. We may also ask you to provide a copy of your certificate of incorporation (or similar document) or other identifying documents. The information you provide in this form may be used to perform a credit check and verify your identity by using internal sources and third-party vendors. If the requested information is not provided within 30 calendar days, the account will be subject to closure.