Over the weekend, several key aspects of Trump’s tax plan were leaked, including a reduction in the tax rate for the wealthiest Americans to 35% as well as plans to cut the top tax rate for ‘pass through” businesses from 39.6% to 25%. While these would be welcome developments for US corporations, they would be relevant only if confirmed in the coming days as the “fluid” Trump tax plan is formalized and, of course, if it were to pass the Senate, which may very well not happen. As Rafiki Capital’s Steven Englander writes, “the inability to find 50 Republican Senators who can agree on anything and the diminished authority of the tax reform Gang of Six plus the sense that even at this late stage the Six are not on the same page on tax reform versus tax stimulus makes it hard to take the ‘over’ on significant tax reform.”
As Deutsche Bank also notes over the weekend, “regular legislation would take 60 votes in the Senate and bipartisan support and allow for proper tax reform. However this is seemingly impossible. The reality is that any changes will likely be made through the reconciliation process. However this first requires a budget being passed by Congress which hasn’t been achieved since the Democratic super-majority in 2009-10.”
Which is why despite the recent surge in market sentiment that Trump’s tax reform is suddenly far more likely, analysts caution investors not to expect too much detail with the release of President Donald Trump’s tax framework this week, let alone passage. As Bloomberg summarizes, the rollout may be designed to show Trump and Congress are unified and committed to aggressive tax reform, Evercore ISI says, while “distractions” (including NFL protests and healthcare repeal) may be helping, as the “Big Six” negotiators stay out of the spotlight, according to Height Securities.
This post was published at Zero Hedge on Sep 25, 2017.