The US equity markets clocked in another slow, narrow range day on Tuesday as participants were unwilling to make major moves ahead of the GOP tax proposal which is scheduled for release on Wednesday. As I mentioned earlier this week, the bill will mark a major milestone for possible tax reform that will lower the corporate tax rate substantially, provided that the bill that is revealed on Wednesday is not a sharp departure from the rough draft presented earlier this year. It is possible that modifications to the individual tax brackets will be proposed whereby a fourth category will be introduced for the upper class, but otherwise I expect that side of the bill to remain mostly the same as in the rough draft.
However, I do expect that the corporate rate will be phased in over a period of at least 5 years, which will be somewhat of a disappointment to the markets but still a positive development provided that there is little chance of that being cancelled after 2020 in the event the President Trump is not re-elected. Also, if the phase in starts next year with a significant cut, then this should spur equity prices somewhat higher, although I will expect initial volatility as the market has been stagnant at the recent highs for some time. Only a clean and clear cut to the corporate rate that begins next year will probably surprise the markets enough in order to induce a renewed surge in buying. Let’s keep an eye on the proposal to see just what’s in store.