Will mortgage interest deduction survive tax reform?

Will mortgage interest deduction survive tax reform?

The tax reform that is long overdue is going to impact almost everyone. As part of this, all the existing tax deductions will be examined, and some of them may be removed altogether. The interest on a home mortgage is currently tax deductible up to a maximum limit of 500k for single and a million for joint filers.

Obviously, the benefits of this deduction are skewed towards big mortgages, as the interest deducted would be more for them.
This incentive may be on the chopping block as part of the overall tax reform, but the most likely scenario is reducing the deduction rather than eliminating it altogether, say to 500k or 600k. Removing it entirely may not be feasible given the pressure from the real estate lobby as well as the public to some extent.

Subsidizing huge mortgages is not a smart tax policy and it’s time to correct that.

Low unemployment = Subdued inflation?

The record low levels of unemployment and its ramifications currently are somewhat puzzling. Under normal circumstances, this would generate a wage growth in the economy, which in turn triggers inflation. But, that is not what is happening now.

The twin dynamic of Globalization and Technology are severely restraining any wage growth. Normally, the low unemployment level usually increases the job churn rate in the economy, which is the rate at which people keep changing jobs. It’s rather unusual that not many people are changing jobs in this expansion, primarily due to anemic wage growth. This is against an economic backdrop that has been steadily adding jobs steadily.

This explains the inflation conundrum to some extent that has been bothering the policy makers and the economists alike. This is complicating the Fed’s decision to raise the interest rates.

High dividend yielding stocks – Be skeptical!

High dividend yielding stocks – Be skeptical!

 

A big dividend is enticing, after all what not to like about making more money. But, certain degree of skepticism is warranted when this yield becomes unusually higher in a very short time. Currently, there are certain stocks that fit this criteria, especially in the battered retail sector. The onslaught of online e-commerce on traditional brick and mortar retail is causing some of the retail stocks to plunge to multi year lows, thus pushing up the yields.

Apparently, when a stock plunges, the current dividend yield appears attractive. But, this seemingly higher yield is very likely to be cut, and is not sustainable. Maintaining it could potentially become a drag on the financial health of the business. In this scenario, the overall capital structure has to be taken a closer look to assess the financial health and the continuation of the dividend. I’m just referring to common stock only and nothing else in the capital structure hierarchy. In a way, cutting the dividend is the logical step financially. There were many instances in the past, when the dividend yield was high due to a plummeting stock price, subsequently resulting in a particular business encountering serious problems.

Anything that appears rosy while investing in the financial markets requires some level of caution.