As mentioned last week, the proposed GOP tax bill is the central focus of the financial markets as traders seek to determine if significant tax reforms are imminent, and to what extent. However, as I have read headlines of major news sources such as the Washington Post, New York Times, and many others, I’ve noticed that the press seems strongly focused on one thing, and that is the tax benefits that the wealthy would potentially receive from the current version of the bill. If you have noticed, this is the main tactic used by opponents of tax cuts, but at this point it seems even more pronounced to me than in the past. The current GOP tax bill does offer substantial tax savings to people in the middle class and upper middle class. It also does so for the upper class. The case for the lower class can rightfully be argued to either be a reduction or no savings at all. Either way, way isn’t being pressed as much to to forefront currently was the fact that many people in higher tax states were apparently pushing their representatives to block the bill unless some concessions were made to them.
And then there are the corporate and small business tax rate proposals, which would substantially lower those rates. While this is certainly something that the markets would favor, the pushback again is anchored in the notion that big companies should not be given tax breaks. However, I suspect this is more motivated by congressman being pushed by the largest companies like Apple and Pfizer to push back against the bill until it eliminates the proposed new tax on payments the make to offshore affiliates. In other words, the battle of words doesn’t seem to be reflecting what the real issues are, and are instead drumming up opposition on familiar complaints about the rich not paying their “fair share”. While this is a legitimate concern, I think that ultimately it would be best for the markets if tax reform does pass and businesses are able to save money. I don’t expect that they will necessarily go on a hiring spree with the money saved, but I am certain they will use those additional funds to push equity values higher, which again is good for the markets. Overall, we should see more hiring from small to midsize businesses provided that the bill offers substantial savings to them and to their customers. Until then, expect considerable uncertainty going forward.