For a claimed once in a lifetime event, the Trump tax plan fell on Wall Street like a damp squib – the Dow rising 30 or so points at best – a fraction of the previous day’s 200 plus point surge in anticipation of the announcement.
In fact Wall Street faded after the tax plan was revealed, ending with a small loss on the day of around 21 points.
It underwhelmed investors who better understand (than Trump) the hurdles the idea has to overcome before becoming law.
Corporate taxes would be cut to 15% for corporations, small businesses and partnerships of all sizes and companies holding cash offshore (an estimated $US2.6 trillion) would be allowed to return in exchange for a one off low tax payment (which hasn’t been specified).
The lack of any substantive detail, implementation costings and measures to pay for the cuts tells us the proposal was announced overnight merely for one thing – the first 100 days agenda that trump is fixated by.
The 100 days since his inauguration is up on the weekend (and before then he has to get an agreement to lift the debt ceiling, otherwise everything stops, including work on this tax plan). This tax plan is a boast, not a policy.
The move to tax partnerships, limited liability companies and other so-called “ ass-throughs” at 15% would represent a major tax cut for many businesses – from mum-and-dad grocers to hedge funds – including Mr Trump’s own business empire, as well as the rest of his family and his entire billionaire ladened cabinet, from Commerce Secretary Wilbur Ross to Trump’s special unpaid adviser, Carl Icahn.
Under current law, those companies pass their earnings and deductions through to their owners, who then are taxed at their individual income tax rates.
Personal taxes would also be cut and some eliminated, but with no estimates on timing on cost.
Long on hyperbole and short on detail the proposal can’t become law without the approval of the US Congress – President Trump can’t sign an order wishing a new tax system into being and nor can the Republicans make them permanent without the agreement of the Democrats, especially in the Senate.
If that doesn’t happen, the tax changes will be for a mere 10 years.
On top of that, this plan falls short of a comprehensive tax code overhaul long discussed by many of Trump’s fellow Republicans, many of whom see tax and spending cuts in the one light.
There was no detail about how they would be paid for except the hope and a prayer ‘magic pudding’ approach that cutting taxes will stimulate a growth dividend.
It will increase the deficit, an idea that also won’t win over some Republicans, especially the hard right of the party many of whom helped sink his poorly designed healthcare proposals.
Promising the most radical reforms in 30 years, Gary Cohn, the former senior Goldman Sachs executive who is now chief White House economic adviser, said: “We have a once in a generation opportunity to do something really big.”
Treasury Secretary, Steve Mnuchin (another former Goldman Sachs executive and film financier) claimed the administration was “on the same page” as Republicans in the House and Senate after briefing them on Mr Trump’s tax plan.
However, the Financial Times reported “But in a sign of the divisions that have opened up with House speaker Paul Ryan, Mr Mnuchin said a controversial import tax that is key to Congressional Republicans’ plans did not work “in its current form”.
The Treasury secretary also was unable to guarantee that the tax reform package would be revenue-neutral, and therefore permanent — something that Mr Ryan has been prioritising. Without Democratic support the tax cuts would have to be temporary if they would otherwise add to the deficit beyond 10 years.
For individuals, the proposal included simplifications, a cut in the top tax rate from 39% to 35%, and a reduction in the number of tax brackets from seven to three.
Taxpayers with incomes of up to $24,000 would pay nothing under the plan, and it would double the standard deductions — a move which will significantly lower the amount of income subject to federal income tax, and boost the cost of the plan.
It would also end a 3.8% net investment income tax that applies only to individuals who earn more than $US200,000 (around $267,000) a year, repeal the alternative minimum tax and eliminate the estate tax, which currently applies only to estates worth more than $US5.49 million for individuals and $US10.98 million for couples. The Trumps and their family would be beneficiaries of this as well as the rest of his very wealth cabinet.
Despite the ambitious headline measures, both Mr Cohn and Mr Mnuchin acknowledged there were few details of how many of the new measures would be implemented, including what incomes would be subject to the new individual rates.
The discounted tax rate for repatriating corporate taxes from overseas was left similarly vague. “We have outlines. We have a broad-brush view of where they’re going to be,” said Mr Cohn. “We’re running an enormous amount of data on the proposals. We will be back to you with very firm details.”
