Trump Makes the Move Wall Street’s Always Wanted

Deregulation, healthcare reform, infrastructure buildout, military buildup, better trade deals, immigration reform, border security … all these things were anticipated by both Wall Street and Main Street on Nov. 9, one day after Donald Trump became president.

Yet for Wall Street, by far the biggest anticipatory concern was the possibility of tax reform in general, and specifically corporate tax reform.

Here, Wall Street has been wishing and waiting for specifics.

It’s no secret that the smart money wants the corporate rate to go from the currently very high 35% to the relatively low hoped-for rate of 15%.

Well, today Wall Street finally got some progress on the corporate tax front. Reports surfaced that President Trump ordered White House aides to draft a tax plan that slashes the corporate tax rate to 15%.

Now, here’s the key part of this proposal …

The president wants the corporate tax reduction plan to be developed even if it means a loss of revenue.

According to news reports citing people familiar with the situation, the directions from Mr. Trump to his staff were both straightforward and unambiguous.

Here’s how the Wall Street Journal described it in an article in today:

During a meeting in the Oval Office last week, Mr. Trump told staff he wants a massive tax cut to sell to the American public, these people said. He told aides it was less important to him that such a plan could add to the federal budget deficit, though that might make it difficult to sell to GOP lawmakers who are wary of such a large tax cut. Mr. Trump told his team to "get it done" in time to release a plan by Wednesday, the people said.

This is the first step in the direction that Wall Street has been pining for since Nov. 9.

It’s also the one thing, if it passes, that can actually move the needle materially on equity valuations.

***

You see, if the corporate tax rate drops from 35% to 15%, that would directly add to the bottom lines of corporate profits. In many cases, it would add to them significantly.

That additional earnings tailwind would go a long way to justifying the current high valuation of the S&P 500. The benchmark U.S. index now trades at about 18.25 times 2017 earnings-per-share (EPS), and 17.75 times 2018 EPS.

Traders know this. And that’s one huge reason why the Dow shot back up above the psychologically significant 21,000 mark in Tuesday trade. The Nasdaq even cracked, and closed above, 6,000 for the first time.

No wonder the bulls came back, and danced jubilantly on the corner of Wall and Broad.

The Dow gained 1.1%, the Nasdaq gained 0.7% and the S&P 500 gained 0.6% today.

If the corporate tax rate does get slashed to 15% … and that is a big "if" given the lack of support for any tax reduction in the Senate and the slim Republican majority there … then it would make the U.S. corporate rate much more attractive relative to other nations.

The WSJ had a great graphic in the aforementioned article showing where we are now vs. rival economies.

Currently, our corporate tax rates are higher than France, Japan, the UK, Germany and Ireland.

Ireland has the lowest corporate rate. So is it any wonder why there have been some many "inversions" — i.e., companies around the world buying Irish companies so that they can officially domicile their organizations in that tax-friendly island nation?

If the U.S. rate can get dropped down this far, it would go a long way toward reversing the inversion trend … and toward getting companies back home to the U.S.A.

It also would do wonders for justifying the post-election rally … at least in terms of fundamentals and valuations.

***

Do you think a corporate tax cut is a good idea? Or, do you think it will actually pass through Congress? Leave a comment on our website or send us an e-mail.

Good luck and happy investing,

Brad Hoppmann
Publisher
Uncommon Wisdom Daily

Your thoughts on “Trump Makes the Move Wall Street’s Always Wanted”

  1. We need to bring back our companies & keep our companies here at home -I know I lost my job at GE when my job left to go to Mexico.I had been there 18 years. It was hard to start over at my age. Great idea that President Trump is behind the working middle class-helping to save our jobs.

  2. Don’t we need the revenue to maintain our debt and other programs that keep getting closer to the end, i.e., social security? Of course our government will use any excuse to push it through. Seems to me that as a result, if passed, all will be paying more in taxes than corporations only to realize that it’s a gift given which, ultimately, will not result in lower consumer prices. Go ahead Mr. Trump, as you have lost my support.

  3. Brad, the Trump Administration is betting that the long term increase in business volume will will offset the short term loss of revenue. That is a huge gamble on the backs of the American taxpayer. Someone still has to pay this country’s bills while Trump’s gamble develops. I hope for the country’s sake he is right in a big way. Because if he fails the results will be catastrophic. American taxpayers have already informed the corporate sector that there will be no more bailouts. They have already had their last bite of that apple.

  4. The US has one of the highest corporate tax rates in the entire world. Our corporate taxes are higher than many competing countries like Canada, The UK, Germany and Japan. Our corporate tax rate is higher than socialist countries. We definitely need to drop our corporate tax rate.

  5. I think to cut corporate taxes from 35% to 15% without some off-setting tax increase is outrageous, benefitting the wealthy and not the poor and middle class, and just adding to our national debt.

    I feel that significant necessary infrastructure spending along with increased tax on the very wealthy (those making more that $10.000.000 per year) is the way to go. The very wealthy cannot spend all their money, but invest much of it, increasing the value of the stock market, but not helping the middle class, most of whom don’t own significant stocks and bonds.

    Government spending on necessary national infrastructure projects would go mainly to the middle class, who have to spend all their money just to survive. Because this money would be put back into circulation it will cause the economy to grow, create more jobs in the middle and lower middle class and produce better earnings and profits for companies, which would benefit the wealthy as well.

  6. I believe it is a good thing to have corporate-friendly tax structures, but there should be regulations in place as to how those excess profits should be used. Corporations should be required to use tax relief to expand and create jobs for the American people.

  7. I suppose 15% of something is better than 35% of nothing. But would it not be better to close off these tax and black money havens like the Cayman Islands, Virgin Islands, Switzerland, Panama, Jersey?
    It won’t happen though, because the elites ( including most of Trumps Cabinet) have a huge vested interest in the status quo.
    So, we get a tax race to the bottom with Governments, so they are increasingly indebted and can’t afford to do most of what they promise, or should do , for the majority of voters.
    Ah well, to quote the Late Douglas Adams, ” first with their backs to the wall when the revolution comes…” Or to put it another way, everyone has two psychological lines, one which is “how high will you go before you screw up”, and the other which is relevant here – “how low will you go before you get off your arse and do something about it?” Maybe we are fast approaching the latter.

  8. As a safety valve in case his wilda— projections could be wrong, add once they work for a 15% reduction and it turned out to be even lower, then the minimum would still override and a 15% tax on whatever is past would be incurred.

  9. It’s unfair misleading to use ‘posted’ tax rates. Very few companies pay posted tax rates anywhere. You need to look at ‘effective’ tax rates. On that basis, after numerous deductions, the US is already much more comparable!

  10. Lower the rates……yes. But just as important is the need to gut the massive code and make it much, much simpler. He has said he will do that. I hope he can get the Dems and Repubs in congress to go along. They are all so resistant to change…even change that would be good to the American citizenry.

  11. hi brad.,

    on trumpies tax cuts. its like if they are doing it why aren’t we? for generations and around the world including oz, governments have been appearing to be sort of hostile towards ‘big corporations’ making profits, so ‘little’ countries welcome them and make a killing. in fact the rothschilds do they main banking in jersey island, u.k. a tax free haven. other small places do the same and attract massive funds and company biggies. so the brainstrusts or the deceitful in usa have finally been made aware of a no brainer. amazing! let it be. ron from oz

  12. What about the deductions? I would like to see all deductions, both individual and corporate, eliminated. If that would happen, then a 15% rate makes more sense.

    Naturally the devil is in the details. In theory this is a good thing but what are the details. I would also be interested in seeing our tax structure, including deductions, compared and contrasted to those of other countries.

  13. Oh yes, that is just what we need for the rich to get richer and and the poor poorer where are the tab breaks for Seniors and the working man. Of course, President Trump would want he wants more more money. It makes me ashamed of Wall Street not like they don’t make money.

  14. Yes, i believe that if we can get it down to 15% that many corps will come back here to the USA to save the big money on taxes and we’ll make less at first, but i think that the number of corps that would come back would give us a lot more corps to tax and that will bring the amount of money from the tax cut to adjust back to where it was from just more corps being taxed! By getting the amount of tax money back by charging less tax to more corps than a higher one to a few. Trump knows what he is doing, period. If the media would stop trying to broadcast lies about him and leave him alone he’ll bring back the work for us unemployed Americans!!! And the gov will end up within a year or 2 to get the amount of taxes back again!

  15. Although you graphically show the top U.S. corporate tax rate over the last 17 years (about 35%), you fail to show the average rate ACTUALLY PAID! Loopholes greatly reduce the rate paid. Boeing for example has paid a 0% tax on billions of dollars in profits over many years. I’d be more convinced of the need for a corporate rate reduction knowing the rates actually paid. No corporation wants to pay taxes, but gratefully accepts government benefits. How about highlighting the actuals?

  16. Doubtful 15% can pass. I don’t think the current rally has much to do with tax anything. Rather it’s the French election and earnings.

  17. Yes a Corporate tax cut is a good idea for traders & investors but his personal tax cuts seem to favor those who need it least. Also, with the tax cut, how does he pay for items in his budget such as increased defense, the wall, intrastructure upgrades, etc? The answer is at the expense of social programs such as Planned Parenthood, the EPA, Meals on Wheels and others which will hurt the middle and lower class. They will fight him unless changes are made to the tax percentages and more social programs are left in place.

Comments are closed.