What If Trump Can’t Get 20% Corporate Tax Rate
As we all await the “phenomenal” tax cut, things might not be as rosy as President Trump suggests. Just imagine what would happen to the stock market should the “phenomenal” evaporate into thin air of Congress’s inaction and infighting.
Consider the latest news flow.
If you talk to Republicans, they don’t believe Trump will introduce a comprehensive tax plan soon. This might be wishful thinking, because they would prefer Trump not release a plan right now. They say that, behind the scenes, the administration is working closely with the Hill on this top priority. Tax reform won’t start in earnest until the summer. Take a deep breath, buckle up and relax: tax reform will die multiple deaths during this process. Many Republicans are afraid that if Trump releases a tax plan now, it will get picked apart over the next several months and make the process much harder.
The slow start could end up delaying other Republican priorities, including an ambitious tax overhaul. Party leaders insist in public that they remain on target, but the legislative calendar is getting clogged enough to jeopardize significant chunks of the GOP’s agenda for the year.
Most importantly, according to RBC….
The potential for President Trump’s speech to a joint-session of Congress on February 28th to disappoint very-high market expectations with regard to tax-policy clarity. We’ve spoken for months now on how the ‘corporate tax cut input’ is the largest anecdotal driver of the S&P / single-stock estimate upgrades since the election, with the generic assumption being applied of a 20% corp tax rate. The issue is this: it is abundantly-clear at this point that in order to fund a cut to a 20% rate, you HAVE TO incorporate a B.A.T. as the funding mechanism…otherwise the best-case cut is significantly weaker. But as this Senate / CEO “anti-B.A.T. food-fight” drags on, it’s incredibly doubtful that Trump will be capable of making any specific claims to the larger policy construct in just such a short period of time, as it would require TREMENDOUS progress from the current bickering. Again, this reiterates to me the high-potential for disappointment