US Tax reform

Posted: September 29, 2017 in Uncategorized

Finally President Trump presented the super-leaked new tax reform proposal.

There is a lot of internet coverage – so I just make a few points.

-The tax plan is still unfunded – and some estimates point to USD3 trillion costs over 10 years – it is justified by greater growth – but it will irk some Republicans.

-It is quite skewed to the wealthy – this means that it will have quite a few Democrats  against – and wealthy are not likely to spend their tax cuts as much as the poor (if you earn $400,000 you will not spend more because you have a 5% discount on taxes).

-While it is true that the US Corporation has the highest corporate tax of the OECD at 35% – there are a lot of deductions – so much that the Treasury Department estimates a corporate tax rate of 22% if not less (between 2008 and 2015 100 Fortune 500 companies paid zero tax for at least one year). The new rate under the Trump plan is 22%.

So my take is that:

  • It is likely that the Tax Plan will not pass in this form – probably there will be a watered down version of the plan.
  • Even if it passes in this form the real impact will be minimal (between 0.25% -0.5% of GDP…or even negligible)
  • As the market, in this period, like to see the glass half full the stock market will not majorly be affected.

 

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