Futures Slide On Report Corporate Tax Cuts To Be Temporary, Phase Out After A Decade
When the NAR won the battle over keeping State and Local Tax deductions “as is”, in the process denying the proposed GOP tax reform more than a trillion in revenue over the next ten years, it effectively doomed the most important provision of the republican tax bill set to be unveiled tomorrow: the reduction in the corporate tax rate from 35% to 20%. Or rather the permanent reduction in the corporate tax rate. Because according to House Ways and Means Chairman, Kevin Brady, what will be revealed on Thursday is a tax proposal with a temporary corporate cut, one which reverts back to the original 35% tax rate after a decade.
Brady says tax bill will only have TEMPORARY cut in the corp rate from 35% to 20%. Couldn’t not make permanent cut comply with Senate rules
— Damian Paletta (@damianpaletta) November 1, 2017
As Bloomberg confirms there have been conflicting reports about when the rate cut would take effect, or how long it would last, and according to a Republican lawmaker, House tax writers will phase out the proposed corporate rate of 20% after a decade. While cutting the corporate tax rate to 20% from 35% is a key provision of the Republican tax legislation that set to be unveiled tomorrow, no matter how hard they tried, GOP legislators could not get over a key hurdle: lack of revenue.
According to Bloomberg, “Congressional tax writers are struggling to find enough revenue to help the tax package adhere to the 2018 budget Congress adopted last month. That budget would allow the legislation to add no more than $1.5 trillion to the federal deficit — before accounting for any economic growth that might result.“
The problem is that the corporate tax cut is estimated to cost just over that, or $1.6 trillion over the next decade according to the Tax Foundation. One solution to the dilemma, is the notion of phasing in the corporate rate cut. Furthermore, the congressional Joint Committee on Taxation said in an April letter to House Speaker Paul Ryan that a corporate tax rate of 20 percent would create deficits in the long run even if it remained in effect for just three years, adding further complication to the current revenue-less predicament.
Another problem: making the rate-cut temporary would limit its ability to spur economic growth, a key selling point cited by President Donald Trump and others. It is also a key factor in explaining the recent market surge, especially since Trump’s “Biggest tax cut ever” would have a 10 year shelf life, at which point things would revert back to the way they were.
And while stocks have been slow to grasp the significance of this major disruption to the GOP tax bill, the USDJPY is – gradually – waking up, or rather down, and so are futures…