Yesterday, President Trump unveiled his tax plan for America. The biggest thing this plan does is lower the corporate tax rate from 35% to 20% and reduces small business taxes to a maximum of 25%. The bill also allows for immediate expensing of investments made for equipment which will stimulate businesses everywhere to make purchases to grow their enterprises. This bill will drive GDP growth, the kind of growth we haven’t seen in over eight years. Many analysts believe that we could get to 4% or even 5% GDP growth in the next 2 to 3 years, which will add plenty of revenue to operate our government.
Without a doubt, the state and local tax deduction will be a contentious issue as the legislation moves into the Senate. The cap on real estate tax deductions will also be hotly contested; however, doubling of the standard deduction will more than offset these concerns for most Americans filing their taxes. The Republicans decided to leave the top tax rate unchanged at 39.6%. This takes away the idea that the tax cuts are for the rich, which they’re not. In the aggregate, taxpayers will see a reduction of approximately $1100 a year and will also see themselves working in a pro-business environment. As businesses return to the United States, the demand for labor will go up which should prop up wages for the average worker.
While the markets had an immediate negative reaction to the legislation, they turned into positive territory when the president announced Jerome Powell as the new Fed Chairman. Powell is a Republican who will take the same measured approach as Janet Yellen in developing Fed policy. Economists believe that Powell will unwind the Fed’s balance sheet and increase interest rates in a slow and measured approach which will be a boon for markets.