By Samuel Taube with Alexander Green According to House Ways and Means Committee Chairman Kevin Brady, the House is moving forward on a single unified tax reform plan.
So I recently sat down with our Chief Investment Strategist Alexander Green to get his views on what this means for the economy, the stock market and your portfolio.
ST: Earlier this year, the Republicans found that reforming Obamacare was much more complicated than they thought it would be. They couldn’t get it done. Is tax reform really going to happen this year?
AG: Absolutely. It needs to happen, and it will happen. If it doesn’t, what will Republicans run on in 2018… “Elect us – we can’t even get things done without partisan gridlock”?
ST: Healthcare is a big sector – nearly 20% of the economy – but tax reform is the whole economy. If they can’t get healthcare done, how will they get tax reform done?
AG: There is actually more agreement among Republicans on tax reform than there is on healthcare reform. All conservatives want to simplify the code, reduce individual and corporate rates, and give U.S. corporations an incentive to repatriate foreign earnings. It’s a shame that billions of dollars of corporate profits are sitting in cash overseas when those companies would love to bring the money back here to invest in factories, equipment and labor. But the tax penalty is simply too high.
ST: Is tax reform really that big a deal? Has it been overhyped?
AG: No. It’s hard to overestimate its value. Tax reform will have a huge impact on economic growth, investment and corporate profits. And – not incidentally – those are exactly the elements that drive stock prices higher.
ST: How?
AG: Let’s start with the basic idea that anything the government does to incentivize people to start or expand a business is a good thing. It means more money is available for research and development, factories, employees, office space and capital investment.
Yet our corporate tax rate – at 35% – doesn’t just make us less globally competitive, it actually drives U.S. companies out of the country.
ST: How so?
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AG: Some firms do a so-called inversion, in which they actually move their headquarters overseas. Others agree to be acquired by a foreign buyer to – once again – relocate overseas.
Burger King moved to Canada after its 2014 acquisition of Tim Hortons to avoid $275 million in corporate taxes.
Budweiser was bought by InBev – now Anheuser-Busch InBev (NYSE: BUD), the maker of Stella Artois and Bass – and now calls Belgium its corporate home.
Ingersoll-Rand (NYSE: IR) is based in Bermuda. Liberty Global (Nasdaq: LBTY.A, .B, .K) is headquartered in the U.K. Seagate Technology (Nasdaq: STX), Accenture (NYSE: ACN) and Chiquita Brands are all based in Ireland. And I don’t think it’s because the Dublin area is a good place to raise bananas.
ST: Right. Are corporate tax rates really that much lower overseas?
AG: Dramatically lower. In Ireland, for example, trading income is taxed at a top rate of 12.5%. That’s roughly a third of our corporate tax rate.
ST: How about those …read more
Source:: Investment You
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