What's going on?
A senior figure in the Trump administration said on Thursday that the White House expects to pass a “very significant” tax reform (tweet this) for companies and households into law by the end of this summer. You’ve got our attention.
What does this mean?
In his first televised interview as head of the US Treasury, Steven Mnuchin highlighted plans to overhaul the US tax code through simpler rules and lower taxes for companies. This could especially benefit small and medium enterprises, which make up over 95% of all businesses in the US. He also said that the White House was looking for ways to get US companies to bring some of their profits made overseas back into the country by lowering taxes on those profits.
Why should I care?
For markets: Companies stand to benefit if Trump’s tax reform goes according to plan.
If things pan out as expected, the corporate tax rate for US companies could drop from about 35% to around 20%, which would give a big boost to companies’ bottom lines. In theory, higher profits should also pass through to better economic growth, as companies would have more money to hire workers and pay for new investments. Similarly, profits brought back from overseas could be spent on the same initiatives, thus boosting the economy even further.
The bigger picture: Whether or not the US economy picks up meaningfully is a key question for Trump’s economic agenda.
The Trump administration aims to hit an annual economic growth rate of at least 3% – a rate that the US hasn’t experienced since before the 2008 financial crisis. The stock market, which hit another record high on Thursday, is almost certainly reflecting some of this optimism that tax cuts, regulation, and (maybe) higher government spending will give the economy a serious boost. To what extent those plans pan out, however, is still very much up in the air (e.g. it’s not clear what Congress will agree to).