Wednesday’s Stock Market Sell-Off And The Prospect Of Tax Reform

Wednesday’s Stock Market Sell-Off And The Prospect Of Tax Reform
By Katrina.Tuliao ( [<a href="">CC BY 2.0</a>], <a href="">via Wikimedia Commons</a>

Wednesday’s massive stock market sell-off has been attributed to the declining political fortunes of the Trump Administration, and even the possible impeachment of President Donald Trump. The reasoning is that the gathering political turmoil greatly lessens the possibility of meaningful “tax reform”, or perhaps more accurately,  large tax cuts.

I would suggest that the effect of an impeachment might well have the opposite effect. In other words, the removal of President Trump as a meaningful political player — whether by impeachment, or simply greatly diminished political power — may actually make large tax cuts this year much more likely.

Let’s consider all the help the president provided with the so-called “repeal and replacement” of Obamacare. Trump perhaps put things best when conceding that he had never realized how complicated healthcare was. This astonishing ignorance did not help persuade many recalcitrant Republican House members to vote for the American Healthcare Act.

Here’s what Charlie Munger had to say at the Daily Journal meeting

Charlie MungerCharlie Munger spoke at the Daily Journal Corporation's Annual Meeting of Shareholders today. Although Warren Buffett is the more well-known Berkshire Hathaway chief, Munger has been at his side through much of his investing career. Q4 2020 hedge fund letters, conferences and more Charlie Munger's speech at the Daily Journal meeting was live-streamed on Yahoo Read More

There is little evidence that he would be any more engaged in tax reform. Again, it would be left up to the Republican leaders of the House and Senate to do all the heavy lifting.

Still, the prospects for the passage of tax reform may be considerably better than those of healthcare reform. That’s because every Republican — and perhaps a sizeable contingent of Democrats — will agree on at least two key provisions — the lowering of the top marginal corporate income tax rate from 35 percent to, say 20 percent, and the repatriation of hundreds of billions of hitherto untaxed corporate earnings at a bargain tax rate of, say 10 percent.

Let’s remember the old adage, “The president proposes and Congresses disposes.” Whether the president’s surname is Trump or Pence, all he will need to do is just say “yes”.

About the author

Steve Slavin has a PhD in economics from NYU, and wrote sixteen math and economics books, including a widely used introductory economics text now in its eleventh edition (McGraw-Hill). The Great American Economy  (Prometheus Books) will be published in August. He is a Professor Emeritus at Union County College, and previously taught at Brooklyn College, New York Institute of Technology, and St. Francis College.

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