It’s not like the Republican leadership in the House of Representatives didn’t see this coming. One reason they kept their bill under wraps until the last minute was fear that once the legislation went public, special interest lobbyists would swarm Congress looking to either protect existing tax breaks or head off tax increases or argue for bigger tax cuts.
We certainly won’t know what’s actually in the tax bill when the House of Representatives begins markup of the legislation on Monday. It’s not even clear if members of the House will know what’s in the bill. And there’s no chance that the bill as written in the House will be the bill that comes up for a vote in the Senate. But, to be cynical and I think realistic, none of this matters as far as the financial markets are concerned. For stocks and bonds this is a binary decision: Either the tax bill passes with the cut in corporate rates from 35% to 20% intact. Or the bill doesn’t pass.Â
Yesterday the Senate approved a budget plan that would allow Republicans to pass a tax cut plan without any votes from Democrats (thus preventing a Democratic filibuster.) The budget plan would leave room for a $1.5 trillion tax cut. The markets have been waiting for some progress on the tax cuts and this is a key first concrete legislative step
Friday’s job report for September will be an even bigger deal than usual. The report comes as the market is thinking and then re-thinking its belief that the Federal Reserve will raise interest rates at its December 13 meeting.
Today Gary Cohn, currently chief economic advisor to President Trump and formerly chief operating officer at Goldman Sachs, told a White House press briefing what the “typical” family of four making $100,000 a year could expect under the President’s tax cut. Try a tax cut of $1,000.
The Treasury market has been taking a beating recently with traders and investors increasingly pricing in a December interest rate increase from the Federal Reserve. So today’s flat performance for the 10-year Treasury is actually a relief, especially considering that the Treasury sold $28 billion in 7-year notes today.
The big event this week, as far as financial markets are concerned, will be the Wednesday announcement by the “Big Six” Republican working group of a framework for the long anticipated Republican plan to cut taxes.
10:20 a.m.: The euro is trading down today after the latest ZEW sentiment surveys for the Eurozone and Germany both missed expectations. The German report that a stronger euro was hitting exports. The euro traded below the recent $1.18 price against the dollar. 10:40 a.m.: There’s not much leaking out about the Republican plans for a tax cut but one idea apparently being passed around would change the accounting for things like expiring tax breaks in order to give the authors of any tax bill rom for about $450 billion in tax cuts that wouldn’t need to be offset with revenue increases.
U.S. stocks rallied today on “news” that Republicans had reached a deal to repeal and replace Obamacare. The rally in U.S stocks today on that “news” is an indication of exactly how determined Wall Street is to believe that the Republicans who control Congress and the White House are ready to move on the anticipated big tax cuts that have fueled the most recent stages of this rally.
