Yesterday, the market pulled back a little after the Senate unveiled their tax plan shortly after the House. The biggest revelation that came out of the Senate bill was a delay in the corporate tax rate which would start a year from now. This, coupled with a higher repatriation rate impacted the market in a downward fashion.
The market appears to have already priced in tax relief and is now vulnerable to failure by House and Senate Republicans. In my opinion, it would be shocking if the Senate Republicans aren’t able to find a compromise to produce at least some sort of tax bill. If they don’t, they will undoubtedly be voted out of their majority in 2018. Because they’re using the reconciliation process, they will have to ensure their tax cuts don’t exceed $1.5 trillion dollars over a ten-year period. While difficult, their task is achievable if they are willing to compromise with each other to get something done. I suspect that even some Democrats will vote for it if it lowers the taxes for their constituents in their respective districts. Hopefully the RINOs like John McCain will come to their senses and deliver tax relief for their citizens.
While the members in Congress seem optimistic, I don’t think tax relief is going to be an easy task. They’re going to debate this for the next several days which will undoubtedly produce turbulence in the markets, so expect some ups and downs in the days to come.
At the end of the debate, I believe something will get done. It may be a watered-down version of the current proposal, but at least it will be something. If we see the 20% corporate tax rate get passed for a January 2018 start, you can expect your stock portfolios to reach new all-time highs and the economy to perform brilliantly over the next millennia. If the tax bill fails, you will undoubtedly see a pullback in the market; so, pay close attention to what happens in Congress over the coming days and adjust your portfolios accordingly.
Since failure to approve tax relief would be political suicide for the Republicans, I remain bullish on the market. While most traders have their eye on the tax bill, for now, they appear optimistic with strong finishes at the end of each trading day. I’m cautiously optimistic.
Best of luck everyone!