Most Popular
1. Dow Max Drawdown Bear Stock Market 2022 - Accumulating Deviations from the Highs - 21st Feb 22
2.Putin Starts WW3 in Ukraine, Will Use Tactical Nuclear Weapons, China Prepares Taiwan Blitzkrieg - 28th Feb 22
3.World War 3 Phase 1 - Putin WINS Ukraine War! - 25th Feb 22
4.INVESTORS SEDUCED by CNBC and the STOCK CHARTS COMPLETELY MISS the BIG PICTURE! - 10th Feb 22
5.Will There Be A 2024 US Presidential Election? - 3rd Mar 22
6.Gold and SIlver, Precious Metals Sector Is at a Terrific Buy Spot - 6th Feb 22
7.Why Putin Wants the WHOLE of Ukraine - World War 3 Untended Consequences - 6th Feb 22
8.Dow Stock Market Expected Max Drawdown 2022 - 19th Feb 22
9.Stock Market Calm In the Eye of the Inflation Storm - 4th Mar 22
10.M = F - Everything is Waving! Stock Market Forward Guidance - 7th Mar 22
Last 7 days
Why APPLE Could CRASH the Stock Market! - 21st May 22
Why Is Crude Oil Ignoring US Inventories? - 21st May 22
Here is Why I’m Still Bullish on Gold Mining Stocks - 21st May 22
THE INFLATION MEGA-TREND QE4EVER! - 20th May 22
US Real Estate Investors – Is There An End In Sight? - 20th May 22
How Technology Affected the Gaming Industry - 20th May 22
How To Set And Achieve Reasonable Goals For Your Company - 20th May 22
How Low Could the Amazon (AMZN) Stock Price Fall? - 19th May 22
Bitten by FANG? Clocked by Cryptos? -- 'Air Pockets' Everywhere - 19th May 22
Northern General Hospital Orthopedics Fractures and and Ankle Clinic Consultations Real Patient Experience - 19th May 22
Cathie Wood Goes All in on Teladoc, ARKK INSANE Noob Investing Strategy! - 17th May 22
This is Anything but Positive for US Housing Market - 17th May 22
What Should We Do If There Is No Fed Monetary Policy Pivot? - 17th May 22
All Possible Ways to Earn Free Litecoin - 17th May 22
How low Could the Amazon Stock Price Fall? - 16th May 22
Cathy Wood ARKK INSANITY There is NO Coming Back! - 16th May 22
NASDAQ 100 Stock Market LOWER LOWS & LOWER HIGH - 16th May 22
Sanctions, trade wars worsen US inflation - 16th May 22
AI Tech Stocks Earnings BloodBath Buying Opportunity - 14th May 22
Futures Contract – Trading Crude Oil With USO - 14th May 22
How to Get Kaspersky Internet Security for 80% Discount! Do not Pay Renewal Price! - 14th May 22
Sagittarius A* Super Massive Black Hole Monster at Centre of Our Galaxy REVEALED! - 14th May 22
UK Public Debt Smoking Inflation Gun - 13th May 22
What Happens When the Stock Market Dip Keeps Dipping? - 13th May 22
Biden Seeks Inflation Scapegoats; Gold Advocate Wins GOP Primary - 13th May 22
Apple and Microsoft Nuts Are About to CRACK and Send Stock Market Sharply Lower - 12th May 22
The War on Gold Ensures the Dollar’s Downfall - 12th May 22

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Why Trump’s Tax Plan Might Be Counterproductive

Politics / Taxes Jan 08, 2018 - 02:33 PM GMT

By: John_Mauldin

Politics

Whether you like Trump or not, the new administration is making some good things happen.

The combined impact of deregulation, tax cuts, and (possibly) infrastructure spending will push back against the Fed’s monetary tightening and keep the economy on roughly the same course as in 2017.

If the Republican tax bill isn’t what you wanted, join the club—I was a charter member as my Thoughts from the Frontline readers know.


The headline stories tend to look at the publicly traded giants. But the real impact will be on small and mid-sized businesses—particularly exporters and everyone who competes with imports. The lower tax rates will help them expand and even cut prices.

Having said that, the tax cuts won’t perform magic. I don’t expect uninterrupted 3% growth for the next decade, as some of the bill’s cheerleaders predict.

We will have another recession long before then, and it will probably be a deep one.

Businesses Will Once Again Game the System

I have been talking about the new law with senior financial executives of large, privately held companies, my own accountant, and a number of friends.

This is going to be like 1986 when everybody figured out how to game the system. You changed from being a C corp. to a sub-S corp.

When you look at Thomas Piketty’s fudged and manipulated US income numbers in his laborious and ill-conceived book Capital in the 21stCentury (which says something about economic academia), you see this massive spike in US income in 1986.

Did US citizens suddenly get rich? No, companies simply changed from being regular corporations to being pass-through corporations, which massively increased their reported income without actually increasing their real income.

I did the same thing. You were an idiot not to. Today we all use LLCs, and it is rare to see a sub-S corporation created today.

But now, you are going to see a lot of larger private pass-through corporations become regular C corporations again, because that’s how they can game the new tax system.

In addition, blue-state politicians are already discussing ways to alter their tax systems so that their residents can get around the new SALT deduction limits. The tax revenue that Congress thinks it's going to get is not all going to show up, so the deficit is actually going to be worse than projected.

The Tax System May Help in the Short Term

Goldman Sachs estimates the tax changes will boost GDP by an annualized 30 basis points in 2018–2019, then fade away.

That seems as reasonable guess as any. The changes will help keep the mild expansion alive and push back against Fed tightening, and I think Trump-driven regulatory easing should help as well.

Ask any CEO in practically any industry how much regulatory compliance costs—then stand well back. Now, if my friend GOP Rep. Jeb Hensarling can push through his reform of Dodd–Frank and ease regulations on small banks, we could see an even bigger boost.

Regulatory costs are a major expense item, and companies would much rather spend that money on other things like worker training and maybe even pay raises.

These same factors will also let public companies distribute more capital to shareholders via stock buybacks and dividends. That should support stock prices at least at current levels and possibly push them higher still.

It may not be another 2017-style record year, with numerous sectors gaining 20% or more, but it should be a decent year.

Notice that I said “should be.” Events could also conspire to derail that happy scenario.

Get one of the world’s most widely read investment newsletters… free

Sharp macroeconomic analysis, big market calls, and shrewd predictions are all in a week’s work for visionary thinker and acclaimed financial expert John Mauldin. Since 2001, investors have turned to his Thoughts from the Frontline to be informed about what’s really going on in the economy. Join hundreds of thousands of readers, and get it free in your inbox every week.

John Mauldin Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in