Since the summer, Donald Trump’s tax reform has edged closer to reality. Indeed, next week the bill hits the Senate, where Republicans hope their wafer-thin 2-person majority will be enough to pass a vote of support. Back in November last year, when Trump won election, there was much hope pined on this fiscal re-balance – and in some ways, this is well founded. The US has some of the highest corporate tax rates in the world and aggressive cuts could well engender a revival in investment. However, there is another side to this coin. In order, to be long-run deficit neutral, the plan envisages large income tax hikes. And here lies the rub. These increases are initially offset by a package of temporary tax breaks. This is to say, the Republican’s plan a very 21st century solution; stimulate now and let someone worry about the cheque in the future.
Of course, in the case of the US, with a market near all-time high valuations and after one of the longest periods of economic expansion in history, it’s easy to be a hater. However, for now, economic growth is “picture perfect” with good momentum and low inflation keeping interest rates low and the relative appeal of equities high.
US crude prices hit a 2-year high last week as a leak in South Dakota led to the shutdown of the TransCanada Keystone pipeline. OPEC meet on Thursday when an extension of production cuts could be announced.
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