For the average American, the US economy can seem like an overwhelming topic. In a nation of over 325 million people with a Gross Domestic Product (GDP) of 18.75 trillion dollars, trying to wrap your mind around the ins and outs of our economy can be enough to make most people want to do anything else. However, understanding how the US economy works, including up, downs and trends, can help you better manage your money and plan for the future.
Many investment strategies involve a basic understanding of economics and making decisions about education. The business interest expense deduction is limited to 30 percent of business income before interest, tax, depreciation and amortization. Businesses with less than $25 million of average gross receipts are not subject to this limitation.
Disallowed interest expense is carried forward to subsequent years and is deductible, subject to the same limitations. Affected businesses should evaluate options to decrease interest expenses. In certain situations, there is a tax benefit to replace debt with equity. Successfully planning for your career and retirement requires learning at least the basics of the US economy. Following the US economy news will help you better plan for major life events.
Economy, in its most basic sense, is defined as the wealth and resources of a country or region. The US currently has the third-largest economy in the world. It is considered a "mixed economy" because it mostly operates as a free market economy, but the government imposes some regulations.
For the most part, we have a market economy, meaning the laws of supply and demand drive the production of goods and services. Businesses charge the highest price a customer will pay, and customers look for the lowest prices possible. Wages are also driven by supply and demand where workers seek the highest pay for their skills and businesses seek to pay the lowest possible salary. Our tax policies, budget plans, and foreign policies are all based in the free market capitalism that forms the foundation of our country's economy.
Overview of US Economy News in 201
Overall, the US economic outlook for 2019 is good. According to the latest US economy news, the GDP growth rate is forecast to stay at a normal 2 to 3 percent. Unemployment is forecast to remain at a normal rate and there isn’t expected to be too much inflation or deflation. We are currently in what’s called a “Goldilocks Economy.” Essentially, that means things are steady and should remain steady.
Despite the positive forecasts, there are still several newsworthy events and recent changes that you should keep up with. Knowing how tax law may change or what’s happening with the stock market can help you in your personal financial decisions.
In this article, we’ll take a look at the following topics:
2019 Year to Date: US Economy News
There have been several major developments this year, including the revision of the tax law and some changes to foreign policy, such as the North American Free Trade Agreement (NAFTA). In the following section, you’ll find the highlights of what’s been happening in US economy news recently. This should bring you up to speed on what’s happening and how it may affect your wallet.
Tax Law Changes
The Tax Cuts and Jobs Act of 2017 will bring many changes for the fiscal year 2018. These are the changes that you will see most clearly when you file your 2018 federal income taxes early in 2019. It is the most substantial change to the U.S. tax system since the Tax Reform Act of 1986. Businesses will see a lot of changes, some of them minor and some more substantial. A few of the categories that will be affected by the new tax code are:
Personal Income Taxes
Changes to personal income taxes include changes to the tax bracket for individuals and those married filing jointly. The system still have 7 brackets, but they show rates of 12%, 25%, 35% and 37%. These new brackets mean you will have to earn slightly more before you move into a higher bracket than before.
The standard deduction has increased significantly from $6,350 to $12,000 for individuals and to $24,000 from $12,700 for married couples. The Child Tax Credit has also increased from $1000 to $2,000 per eligible child. The highest individual marginal tax rate is now 37 percent.
In 2026, the rates will increase back to a maximum of 39.6 percent. The itemized deduction for state and local taxes, which includes income taxes as well as real estate taxes, is limited to $10,000 per year. Individual taxpayers can only offset up to $500,000 of wages and investment income with losses from business activities. Excess business losses are carried forward to future years and are deductible subject to the same limitations.
For a comprehensive list of tax changes from the Tax Cuts and Jobs Act of 2017, visit the IRS website: https://www.irs.gov/tax-reform. The information is sorted by personal or business taxes and will provide detailed answers to your specific tax questions:
US Budget Deficit
The U.S. budget deficit grows more concerning each day. It increased to $898 billion in the previous 11 months through August 2018, exceeding the Congressional Budget Office’s forecast for the first full fiscal year under the Trump presidency. Spending rose by 7 percent to $3.88 trillion. Revenue from corporations fell to $163 billion, down by $71 billion from a year ago.
There is significant concern that the country’s debt, $21.5 trillion, is growing out of control. Republican tax cuts enacted this year that will increase the deficit by about $1.5 trillion over the next decade. The tax cuts combined with increased government spending are adding to budgetary issues.
Although the tax cuts feel like a great thing now, it's possible that they will only contribute to the US budget deficit and cause more problems than they solve. Tax money that is moved from the system has to be replaced somehow, and if there are no plans to cut spending along with the reduced tax revenue, the United States may end up in an even bigger hole in the next few years.
The US budget deficit is always a hot topic in election years, but we should pay attention other years as well since it is an important indicator of the health of our economy. Smart investors will track US economy news on the budget deficit to stay informed of how the situation develops.
The United States is on the precipice of a trade war with China. According to the International Monetary Fund (IMF), this could make the world a "poorer and more dangerous place." A full-blown trade war between the US and China would seriously damage the US economy.
Trade barriers would hit households, businesses and the wider economy. Most recently, China announced new trade tariffs on $60 billion dollars worth of US goods, including products such as liquefied natural gas. US tariffs on $200 billion dollars worth of Chinese imports came into effect last month.
NAFTA is a contract between the US, Canada, and Mexico. Recently, Canada agreed to a new trade deal with the United States and Mexico, revamping the three-country agreement after more than a year of negotiations. Just before a midnight deadline, the US and Canadian governments agreed to a deal that would allow US farmers greater access to Canada's dairy market and addressed concerns about potential US auto tariffs.
The agreement has a new name: The United States-Mexico-Canada Agreement. Some experts questioned whether the changes to NAFTA were worth risking relationships with our closest allies. The Trump administration plans to send the new deal to Congress, starting a 60-day review period before Trump can sign it. Congress can suggest changes during that time.
The Trump administration has been working to sign a new trade deal before Mexican President Enrique Peña Nieto leaves office on December 1. To meet that deadline, the text of the agreement had to be submitted to Congress before October.
Some of the main issues in the NAFTA negotiations were:
The unemployment rate fell two-tenths of a percentage point to 3.7 percent, the lowest level since December 1969 and one-tenth of a percentage point below expectations. Nonfarm payrolls rose just 134,000, well below estimates of 185,000 and the worst performance since last September, when a labor strike seriously affected the numbers. The closely watched average hourly earnings component had a 2.8 percent year-over-year increase, in line with estimates from Wall Street. August's initial jobs count moved up significantly, from 201,000 to 270,000, while July's numbers rose as well, from 147,000 to 165,000.
Stock Market Changes
The Dow plunged nearly 832 points in October, the third-worst single-day point decline in history and certainly one of the most significant pieces of US economy news for the year. The index dropped below 26,000 points for the first time in a month. The S&P 500 posted its fifth straight decline, plummeting nearly 3.3%. The Nasdaq dropped more than 4% in the worst percentage decline since June 2016. October has already been a rough month for the market. All three indexes are down, but the Nasdaq is the worst. It has plunged nearly 8% in October. The Dow's point decline was the worst since February, when the index fell by more than 1,000 twice.
Mergers and Acquisitions
Mergers and acquisitions refer to any activity that consolidates the assets of one company with another company. For example, if Large Company A purchases Large Company B, then Large Company A acquiredLarge Company B. Conversely, if two companies combine their assets together to form a larger entity, that would be a merger between the two companies.
There are many reasons companies do this. Sometimes, it allows for greater profit. Sometimes a failing company can be saved if it is acquired by a more successful company. In an economy such as the free market US economy, mergers and acquisitions are allowed, though often regulated.
The following are the biggest mergers and acquisitions for the year 2018:
Developing Stories to Watch
In the ever-changing US economy, new things are always on the horizon. It's important to keep up with what's happening in the US economy news because things that happen at the national level often trickle down and affect the individual. For example, our foreign trade policies can affect how much you pay for goods and services, such as milk or clothing. Keeping up with US economy news may be tedious, but it can help your plan your financial future. Here are a couple of things to watch over the next few months:
Universal Savings Account Proposal
Opponents of the Universal Savings Account (USA) proposal say it would drain federal resources even more than the new tax laws already have. These new tax-preferred accounts would not have income limits for participation and you wouldn’t have to wait until retirement to withdraw you funds. This would cause people to move money from taxable accounts to the new USA program.
The incentive is that all the funds would be tax-free, forever. This shift in savings from taxable accounts to USAs would not increase private savings, but it would cause a loss of significant amounts of federal revenue. Wealthy households would receive the largest tax benefits by far because they already have substantial amounts of money in taxable accounts that they could shift to USAs. Households in the middle tend to hold modest amounts of assets in taxable accounts, and they would receive much smaller tax benefits. This drastic shift in available taxable income would likely contribute to the growing budget deficit.
Foreign Development BIll
The US House of Representatives is scheduled to vote soon on a bill to expand the types and amount of financial aid the U.S. government can provide for economic development projects in poorer nations. The Trump administration has backed the measure. The White House and the bill’s supporters say the new agency would play a crucial role in stopping China’s efforts to expand its influence.
Known as the BUILD Act, it would consolidate two foreign aid agencies into a new entity with broader and deeper financing abilities. The new agency would focus on projects that boost local economies in volatile regions. The bill would create a new U.S. International Development Finance Corporation (IDFC) to replace the Overseas Private Investment Corporation (OPIC), which invests in and draws private capital to international development projects meant to advance U.S. interests. OPIC would be combined with several funds at the U.S. Agency for International Development that now support projects meant to boost economic growth in poor and developing countries.
The new IDFC could provide up to $60 billion in financing through a seven-year authorization and a new list of financial tools to support power plants, ports and other infrastructure. While OPIC can only offer loans and political risk insurance, the IDFC could acquire equity in projects to help support them.
"We're getting left out of a lot of projects because we didn't have the ability to put equity into the projects," OPIC President Ray Washburne told The Hill in May. "OPIC really hadn't changed since 1971, but financial tools in the world have changed dramatically in that time. Like anything, it's time for it to be reformed and redone." The measure has bipartisan support and easily passed through the Senate in early October.
The sheer size of the US economy makes it daunting to try to keep up with exactly what’s going on. In order to get the big picture, you have to take into account our GDP, our tax structure and how our government influences spending, the stock market and how publicly traded companies affect saving and spending, and, finally, our foreign aid and trade policies.
The amount of considerations that goes into deciding something as simple as whether to raise the minimum wage is staggering. When you look at any one aspect in isolation, the answers can seem deceptively simple.
However, the US economy isn’t a pile of separate entities. It’s a puzzle where every piece plays a part in the big picture. Wages affect spending, which affects the health of the market. Foreign markets affect our domestic markets, which affect personal savings and quality of life. It’s all connected, so it’s important to understand the highlights of the US economy news each week.