Providing An Update On Tax Reform and Its Impact

By Oren Jacobson, Market Analyst - New Home Star //

If you’ve followed my Star Report articles this year, you must’ve noticed that I’ve talked about one issue more than anything else: Macroeconomic Policy. Why? With a new administration in Washington, expectations of major changes on that front have dominated the economic conversations and presumptions have pushed the market up substantially. Our market analysis team here at New Home Star has been hyper-focused on the tax reform bills and trying to figure out what impact the proposals might have on the economy at large, and the housing market more specifically. Further, we’ve urged caution to our partners based on a concern of tax reform failing to pass.

That caution has been built on assumptions that the stock market is elevated based on expectations rather than fundamentals and a concern of a pullback if those expectations aren’t met. We’ve made a fairly straightforward calculation so far. The downside risk was stronger than the upside gain. It’s possible, though, that fundamentals are catching up to the market which would be a good thing as it mitigates downside risk. That would be great, and while there’s been some recent data to show this may be the fact, there’s not enough of it in real time to reach that conclusion yet.

However, it looks like a near certainty at this point that the bill will pass. It’s far from over though, and there’s plenty of chances for this to get derailed as the two chambers move to negotiate in conference. No easy feat though, the GOP is under a lot of pressure and has a lot of incentives to bridge their current policy difference.

What are the differences in the bills?

• They have different tax brackets and different tax rates.
• They have different standard deduction limits and itemized deductions.
• They treat pass-through income differently.
• They treat the alternative minimum tax and child tax credits differently.
• They treat medical expenses differently.
• They treat mortgage interest deductions differently.
• They treat student debt deductions and graduate student tuition waivers differently.
• They treat capital investment differently as well as net operating losses for businesses.
• They treat small business capital differently, income made abroad differently, and repatriation differently.
• They also treat the estate tax differently AND the Senate bill repeals the individual mandate from the ACA while the House does not.

Stay tuned for a full analysis of the implications of the tax bill as a final version gets implemented between the two houses. We anticipate that we will get to this point shortly after a final bill passes.