Unless the Proposed Tax Cut Undergoes a Radical Change, Apparently It's Going to Look Like This...
The House and Senate have taken their best shot at a tax cut. Commentary now flows through the main stream and financial media, peppered by politicians' on both sides either extolling or condemning the proposals. Publications targeting financial professionals have been telling us what to expect for our clients for months now; and the advisories keep coming. Normally we'd suggest waiting until all this gets hashed out before spending any significant energy parsing through the details. However, we think we've identified certain basic threads that deserve mention. Unless there's some radical change in plans before the final vote (expected perhaps by December 12th), here's what you might expect.
You may remember that when Trump was elected, a sizable percentage of his supporters were middle class: so much for his loyalty to his base, it would seem.
Then there were those who kept bringing up the Reagan tax cuts, and the prediction that we could expect the same shot in the arm the economy experienced back in the '80s. Alas (and it should be no surprise), it appears such predictions will prove to be pipe dreams. Of course, the devil's in the details. And when it comes to numbers-crunching, you could do worse than David Stockman. So if you want to dive in and get some nitty-gritty, flesh and blood understanding of what's being proposed, along with the likely consequences of those proposals, Mr. Stockman's website is your go-to destination. To whet your appetite, try this on for size:
...if you set aside the so-called pass-thru rate for unincorporated businesses (see below), the entire 10-year tax cut on the individual side amounts to just $480 billion. In the scheme of things, that's a tiny number; it represents only 2.2% of the $22 trillion CBO baseline for individual income tax collections over the next decade; and it also is equal to just 0.2% of the projected nominal GDP over the period.
By way of comparison, the Reagan tax cut amounted to 6.2% of GDP when fully effective; and the net cut for individuals taxpayers alone averaged 2.7% of GDP over a decade. In today's economy, that would amount to a tax cut of $6.5 trillion during 2018-2027 or 14X more than the $450 billionnet figure estimated by the Joint Committee on Taxation.
So much for the comparisons to Ronald Reagan.
(You can read the entire piece HERE.)
Of course, however the tax cuts go, so will go the markets - at least for a while. For the ever-expanding stock market, much will depend on initial public perception. If positive, the so-called long-in-the-tooth bull market may have strengthened legs to continue its now almost 9 year rampage. On the other hand, if the middle class chooses not to drink the Kook-Aid proffered by snake-oil salesmen like Paul Ryan, a negative reaction could shake things up - at least for a while.
- Corporations will receive the biggest tax cuts, with large corporations the biggest recipients of the government's largess.
- There may be something in this for unincorporated businesses. The idea here is that such businesses tend to be smaller, the so-called life-blood of our economy. Having been subjected to decades of regulations that caused more than one business owner to curtail or eliminate full-time employees, this cut may represent a benefit for both owners and, potentially, new hires - although certain categories of unincorporated businesses won't benefit at all.
- The most wealthy Americans will likely see a cut in their taxes. While not a game-changer for the 1% or the 10%, the cuts would make the average middle class Americans quite happy, thank you. But of course, the middle class won't be seeing anything on this scale.
- The middle class will be a mixed bag of meager cuts and actual increases, likely resulting in disappointment if not a turn away from Republicans in the next congressional elections.
You may remember that when Trump was elected, a sizable percentage of his supporters were middle class: so much for his loyalty to his base, it would seem.
Then there were those who kept bringing up the Reagan tax cuts, and the prediction that we could expect the same shot in the arm the economy experienced back in the '80s. Alas (and it should be no surprise), it appears such predictions will prove to be pipe dreams. Of course, the devil's in the details. And when it comes to numbers-crunching, you could do worse than David Stockman. So if you want to dive in and get some nitty-gritty, flesh and blood understanding of what's being proposed, along with the likely consequences of those proposals, Mr. Stockman's website is your go-to destination. To whet your appetite, try this on for size:
...if you set aside the so-called pass-thru rate for unincorporated businesses (see below), the entire 10-year tax cut on the individual side amounts to just $480 billion. In the scheme of things, that's a tiny number; it represents only 2.2% of the $22 trillion CBO baseline for individual income tax collections over the next decade; and it also is equal to just 0.2% of the projected nominal GDP over the period.
By way of comparison, the Reagan tax cut amounted to 6.2% of GDP when fully effective; and the net cut for individuals taxpayers alone averaged 2.7% of GDP over a decade. In today's economy, that would amount to a tax cut of $6.5 trillion during 2018-2027 or 14X more than the $450 billionnet figure estimated by the Joint Committee on Taxation.
So much for the comparisons to Ronald Reagan.
(You can read the entire piece HERE.)
Of course, however the tax cuts go, so will go the markets - at least for a while. For the ever-expanding stock market, much will depend on initial public perception. If positive, the so-called long-in-the-tooth bull market may have strengthened legs to continue its now almost 9 year rampage. On the other hand, if the middle class chooses not to drink the Kook-Aid proffered by snake-oil salesmen like Paul Ryan, a negative reaction could shake things up - at least for a while.
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