Lower corporate taxes could supercharge the economy and boost company earnings
Investors who have written to me are excited about President Trump’s proposed tax plan. The kicker is that any tax relief would come on top of good company earnings (so far) this earnings season.
I’ve been asked for an optimistic long-term target for the U.S. stock market. So here it is: Dow DJIA, 30,000 in five years. However, investors are well-advised to review all scenarios, not only the optimistic one.
The Trump tax plan
Trump is expected to unveil basic principles of his tax plan Wednesday. He wants to cut the corporate tax rate to 15% from the current 35%. He also will propose a 15% rate to be used by pass-through entities, compared with the top current rate of 39.6%. American corporations have stashed over $2.6 trillion of earnings abroad. For repatriation, he will propose a 10% tax on foreign earnings.
If enacted, these changes would be very positive for the economy. Trump’s tax plan would boost gross domestic product (GDP), though tax revenue would initially fall. Let’s examine this issue with a chart.
Chart dating to 1950
The chart shows GDP growth going back to 1950. Trump has been talking about 4% growth in GDP, which, as you can see, is a tall order. It’s been attainable in the past, but not so much recently. Still, even if Trump doesn’t meet his own goal, the economy — and corporate earnings — would benefit.
Ask Arora: Nigam Arora answers your questions about investing in stocks, ETFs, bonds, gold and silver, oil and currencies. Have a question? Send it to Nigam Arora.
The biggest factor
The biggest single factor in the long-term direction of stocks is earnings growth…Read more at MarketWatch
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