Home Morning Commentary Morning Commentary – Yes, Taxes Do Matter…A Lot

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Not to insult anyone’s intelligence by the title of this article, but if you have watched major news media and listened to some politicians over the years, you can surely agree with us that taxes are often presented by some as being either unrelated to economic growth, or worse presented as being NECESSARY to create economic growth. While it is definitely true that tax revenue pays to employ people who create and enforce laws that allow trust and an organized flow to economic activity, it is also clearly true the the economy is greatly impacted by the drag created by taxes. After all, if you had more money at your disposal, would you throw it away? Or would you put it to some use, either to purchase goods and services or invest into your financial future? Clearly that question does not need to be answered.

But when it comes to politics, we cannot underestimate the degree of mental gymnastics that some will go through in order to insist on doing things their way, even when it conflicts with the very goals they profess to seek to achieve. A great example is the fact that even Bernie Sanders, the self-described democratic socialist, had to admit under scrutiny that the GOP tax bill will indeed cut taxes on the overwhelming majority of the middle class. However, true to form, Sanders immediately criticized the bill as being flawed because the tax cuts for the middle class with expire but the tax cuts for corporations will not. While this is true, it begs the question: so why didn’t you and those like you propose an alternative? Or better yet, why don’t you commit now to keeping taxes from going up later? Of course, the answer is that it is simply a political maneuver designed to carry the vote of the middle class. However, while I doubt that taxes alone will keep an entire group of diverse people in one camp, it seems rational to conclude that most people will prefer to keep more of their earnings. Even corporations are surprising the establishment by committing to investment and even pay raises for normal employees.

While we cannot say that taxes are the only thing that counts, it is clear that having more money free to be used by individuals and businesses clearly creates a fertile environment for economic growth. Going forward, we can expect the markets to respond strongly to this change, and so far they have responded predictably with the US equities markets continuing their 2017 upward trend. Generally speaking, bullish impact can continue to be expected, especially for companies that were already struggling with slumping revenues. To this end, we look forward to what the markets will bring our way going forward, and hopefully exploit those opportunities effectively as they come our way. At minimum, we can expect more volatility, but the current tax and legislative environment should continue to bolster equities prices for the near term.

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