The Skinny on Tax Reform, and the Inaugural Issue

The big news this week turned out to be somewhat anti-climactic, as congressional Republican leaders and Trump administration officials finally gave us the skinny on their tax reform proposals.

While there weren’t the nitty-gritty details in the plan that policy and tax wonks (myself included) would have liked to see, the proposal did go further than I thought it would in term of sketching out the broad strokes (at least it wasn’t a one-page wish list).

Now, as I mentioned to Weekly ETF Report readers on Wednesday, I’m an intellectual purist when it comes to taxes, as philosophically I think all forms of taxation are government theft. Yet in the real world, taxes are here to stay, and that means the less of them the private citizen pays, the better off we all are.

Here’s a list of the key proposals in the tax plan, which are all subject to negotiation (despite what any of the key political players here might say).

• A slash in the corporate tax rate to 20% from 35%
• A cut in the “pass-through” business tax rate to 25%
• A reduction of individual tax brackets to three, with a top rate of 35%
• A doubling of the standard personal tax deduction
• Elimination of the state and local tax deduction
• Elimination of the estate tax and the alternative minimum tax
• A one-time repatriation of foreign earnings

The reaction in markets to the tax proposal was somewhat of a yawn, although we did see domestic stocks move up slightly on the news. For the week, the S&P 500 was up about 0.5%.

The muted response to tax reform by Wall Street is likely due to a “wait-and-see” approach now that the first salvo in the tax battle officially has been fired. Yet whether this plan becomes a bullish game changer or a bearish game changer all depends on whether its key proposals can become law.

If we get a tax cut (particularly a sizeable corporate tax cut) that could easily push the S&P 500 up another 4% (about 100 points, or over 2600), because that will increase expected 2018 S&P 500 earnings per share to (conservatively) $145/share.

If, however, Congress fails to deliver on tax reform the way it failed to deliver on health care reform, then we are looking at a stock market that’s currently trading at a very lofty 18 times next year’s earnings estimate… and with no identifiable future growth catalyst and with a Federal Reserve that’s committed to raising interest rates and normalizing its balance sheet.

That would be a definite negative for the bulls.

Welcome to the Inaugural Monthly Issue

My team and I at Eagle Financial Publications have just put the finishing touches on our first monthly Intelligence Report newsletter issue, which is available now at JimWoodsInvesting.com.

Writing in the shadow of the great Dick Young won’t be easy, but I’ve accepted the challenge with gusto. In fact, writing this month’s issue was one of the most pleasurable and fulfilling assignments I’ve ever had, and I hope you find that joy reflected in my prose.

In this issue, you’ll find out more about me, who I am and how I approach the markets and the world. Then you’ll find out my thoughts on the market, the “reflation trade” that’s taking shape, my view on what the yield curve is telling us, my thoughts on the privatization of armies and even a few thoughts on the late Hugh Hefner.

I am very proud of this issue, and I hope you find it compelling, informative and entertaining.

Finally, in addition to the monthly newsletter, we also have published a newly revised and revamped Economic Analysis supplement, which also is available now at JimWoodsInvesting.com.

Here you’ll see some substantive changes from previous issues, including larger charts (though fewer in number) and much more analysis of what those charts are telling us. That analysis comes from me, as well as my colleague Tom Essaye of the Sevens Report.

Tom is a market veteran who spent more than a decade on the floor of the New York Stock Exchange for Merrill Lynch’s Institutional Equity Trading division, where he regularly traded multi-million-dollar orders from clients, including some of the largest mutual and hedge funds in the world.

Being the uber-smart professional that he is, Tom recognized the big discrepancy between the quality of information available to professional investors versus that available to non-professionals. To bridge this gap, Tom created his flagship publication, Sevens Report, and his company Sevens Report Research.

Fortunately, we now all have the benefit of Tom’s insights in this service, as he and I will team up to provide you with the charts and data in the monthly Economic Analysis supplement.

Once again, thank you for reading. Together, we will continue to prevail in our mutual battle to build wealth, and to create a life well-lived.

Upcoming Appearances

Dallas MoneyShow, Oct. 4-6: If you’re in the “Big D” in early October, then come by the Hyatt Regency Dallas and see me, as well as many other great industry speakers, at the Dallas MoneyShow. I will be giving a presentation on Friday, Oct. 6, 8:00 – 8:45 a.m., titled, “5 ETFs to Fight the Fake News.” For your complimentary tickets, go to Woods.DallasMoneyShow.com.