Trump tax reform announcement is expected this week. There are two proposals – led by Trump and House speaker Ryan. Ryan’s plans include a border adjustment tax (BAT) to be imposed on imports to fund the cuts as opposed to Trump’s plans that rely on economic growth to fund the cuts
Impact on corporates
The most tangible effect of the cuts would be a boost to corporate profits. It would also encourage US companies to repatriate profits from abroad and divert these profits towards further investments in the US
Not everybody would be a winner
The reforms might have larger benefits for smaller US firms, that are more impacted by the domestic tax code than those with larger international exposure. Also, if implemented, BAT could negatively impact corporates dependent on imports like retailers, auto companies, etc.
The devil is in the details
The boost in corporate profits should not be looked at in isolation. Removal of interest expense deductibility and BAT could lessen or negate any benefits from tax rate deductions.
Lower taxes do not necessarily mean higher stock markets
The tax cuts, unless they are revenue neutral, are expected to create huge deficits and add to the national debt.Rising national debt could increase interest rates that may not bode well for the stock markets
The Legalities
The differences in Trump-Ryan proposals may create difficulties for Trump in garnering broad support in Congress. And even if the proposal becomes a law, considering the complexity of the reforms, implementation might not be immediate
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