Capital Investment Advisors

How is the GOP’s tax reform impacting the economy?

We made it – tax season is officially over! Now that your returns are signed, sealed and delivered, let’s zoom out to the big picture on taxes. How is the GOP’s tax reform impacting the economy?

It does appear that 2019 will be a pretty good year. Tax reform and government stimulus efforts are expected to provide over $200 billion in positive economic impact. That’s double the $100 billion in positive impact these initiatives delivered in 2018.

Interestingly, so far in 2019, there have been $462 billion in tax cuts, which is more than initially planned, and $249 billion in tax increases. It seems that the system has undergone a form of rebalancing.

As to the overall health of the economy, earnings are a favorite predictor of how we are faring. That’s because earnings are the primary driver for stocks – what companies earn (not what stocks earn) this year and what they may earn in the coming year is the critical point of analysis.

Just six months ago, expectations for the S&P 500 operating earnings stood at about $178 for this year. Today, we believe the number to be around the $172 mark. This figure translates into an environment where corporate profits will be 6% to 7% higher than they were in 2018. This data doesn’t represent through-the-roof growth, but the numbers do indicate that we are on solid footing.

We still have a long way to go in 2019, but the above data, combined with the possibility of a trade deal with China later this year makes for a very promising outlook.

So, here’s to 2019, a year that has the potential to be pretty darn good economically.

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