GOP’s Dollar Shave Club

[Guest]

GOP leaders released a basic framework for the first big tax overhaul in the U.S. since 1986. And as they strap on their helmets and elbow pads for a fight through Congress, we dove headfirst into the plan. 

Simplifying personal income taxes

The number of brackets will decrease from seven to three: 12%, 25%, and 35% (though there’s an option for a fourth for the one-percenters). Which rate will you pay? Impossible to tell, since they haven’t released the cutoffs. 

Extreme Makeover: Corporate Tax Edition

President Trump was pushing for a 15% rate…that’s not going to happen. BUT under this plan, it will drop to 20% from the highest rate in the developed world, 35%. 

That would definitely put the U.S. more in line with other countries (where the average is 22.5%). Not too long ago, we explained how most developed nations had slashed corporate taxes in recent years…the peer pressure seems to be working. 

And for all you cash stashers in the Cayman Islands and elsewhere ($2.5 trillion in total), you’ll be glad to know that corporations can repatriate cash back to the U.S. at a discount. The plan also proposes reducing rates on profits earned outside the country. 

What’s the market got to say?

In the 11 months since Trump’s election, it seemed that markets surged in anticipation of the administration passing a corporate tax cut. That is, these changes were believed to be priced in.

But that may not be the case. Read this carefully: according to Goldman Sachs, stocks of the 50 companies in the S&P with the highest effective tax rate underperformed the 50 companies with the lowest effective tax rate by 11 percent. Basically, companies that had the most to gain under a tax cut haven’t gotten love from investors.

And the market may have been right to discount Congress’ effectiveness. After all, the plan is a nine-page framework that’s shorter than your 4th grade book report….and even shorter on details.