Stocks Rally To Record Peaks Based On Hopes Of Looming Trump Tax Cuts

U.S. stock indexes rallied to record highs on Friday in the midst of a robust bull market that is predicated largely on U.S. Congress passing a comprehensive tax reform package deal in the near future which comes after Republican efforts to repeal and replace Obamacare have failed.

On Thursday the Republican majority U.S. Senate narrowly approved a 2018 fiscal budget that includes an additional $1.5 trillion in deficit spending, allocated for future tax cuts which Republicans hope will generate enough economic GDP growth to offset the $1.5 trillion in deficit spending.

President Trump appeared ebullient on Saturday about the soaring stock market when he tweeted, “Stock Market hits another all time high on Friday. 5.3 trillion dollars up since Election. Fake News doesn’t spent much time on this!”

Earlier on Saturday, President Trump tweeted the newly approved budget is a “really big deal” and will pave the way for “the biggest tax cut in U.S. history.”

Trump tweeted, “Budget that just passed is a really big deal, especially in terms of what will be the biggest tax cut in U.S. history – MSM barely covered!”

On Friday the U.S. Department of the Treasury showed the U.S deficit for 2017 was $666 billion, $80 billion more than in the previous fiscal year.

As a percentage of Gross Domestic Product (GDP), the deficit was 3.5 percent, 0.3 percentage point higher than the previous year.

Deficit hawks in the Republican Party should be concerned about the latest deficit numbers showing a ballooning deficit combined with the 2018 budget allocation for $1.5 trillion in extra deficit spending with no guarantees that Trump’s proposed tax cuts will trickle down and generate enough GDP growth to offset the widening deficit.

Mick Mulvaney, Director of the Office of Management and Budget (OMB), said that the growing U.S. deficit should be a warning and indicator for Washington that the U.S. needs to grow the economy and improve the fiscal environment.

Advocating for a traditional Republican fiscal plan consisting of lower discretionary spending, tax cuts, and weakening regulations, Director Mulvaney, a Republican, said the following on Friday in a statement:

“These numbers should serve as a smoke alarm for Washington, a reminder that we need to grow our economy again and get our fiscal house in order. We can do that through smart spending restraint, tax reform, and cutting red tape.”

Kentucky Republican Senator Rand Paul, a pivotal voter in the U.S. Senate with a libertarian streak in his background, tweeted on Friday that he’s “all in for tax cuts.”

“I’m all in for tax cuts @realDonaldTrump. The biggest, boldest cuts possible – and soon!”

Under the framework of the House Tax Reform plan, Republican House members are pushing for a new tax package consisting of doubling the standard deduction, eliminating most itemized deductions, consolidating the current seven tax brackets into three brackets of 12 percent, 25 percent, and 35 percent, and lowering the small business tax rate to 25 percent and 20 percent for corporations.

According to the non-partisan Tax Policy Center, affiliated with Brookings Institution and Urban Institute, a September analysis of the House tax plan released by House Speaker Paul Ryan on June 24th revealed that the House plan is estimated to reduce federal revenue by $3.1 trillion over the first decade and an additional $2.2 trillion in the second decade.

Two sets of estimates were run by Tax Policy Center that takes into consideration the macroeconomic effects and both estimates showed that the House plan would boost GDP in the short-term, reducing the revenue cost of the plan however, including interest costs, the federal debt would increase by at least $ 3 trillion even with the positive macroeconomic feedback on revenues.

Written and Edited By:

Johnathan L. Schweitzer

@SchweitzFinance

@Schweitz31

schweitz31@gmail.com

 

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