What will Trump’s plans to lower the corporate tax rate, cut business regulations and add a border adjustment tax do to the economy? One firm thinks it’s a positive…
A new report from Daniel Peris, senior vice president at Federated Investors, Inc., evaluated President Donald Trump’s policy proposals and graded them on their potential economic impact. Ultimately, Peris found “more good than bad” in what Trump hopes to accomplish.
As a result, this report’s conclusion paints a considerably different picture of the Trump administration than the one of doom and gloom that mainstream media has been painting since President Trump won the presidential election in November.
For instance, President Trump’s goal of lowering the US corporate tax rate to around 20 percent would be a “modestly positive” result for the economy.
“US corporate tax rates are among the highest in the developed world, and this measure is seen as a way to boost US investment spending, as well as get some of that cash stored abroad by US corporations back into the US,” according to the report.”
“Were [coporate] tax rates to decline materially, that would free up a great deal of cash for further investment and shareholder payments,” according to the report.
Another “modest positive” proposal? President Tump and Congressional Republican’s goal of reducing business regulation to create a more business-friendly climate:
“The stated goal, however, certainly counts as a tailwind, albeit one that cannot easily be translated into specific incremental dividend growth. Rather than a quantitative benefit, less regulation could have a different but equally welcome impact on the portfolio: a greater opportunity set.”
As for Trump’s proposed Border Adjustment Tax, the report found that this, too, would have a minimal impact on the American economy, stating:
“Now it is true that the commodities that go into many of our final goods are produced and shipped globally, but it doesn’t look like the BAT is designed to address or disrupt those flows. It is more a matter of large-ticket finished goods—think automobiles and machinery—not ketchup and potato chips or the tomatoes and potatoes that go into them. This one is a Minimal Impact.”
On Trump’s controversial immigration reform the report found that it will only have a minimal impact on the economy, citing:
“To the extent that the policy would lead to lower in-migration to the US, that would necessarily and unfortunately diminish already anemic medium and long-term GDP prospects. In that case, our companies would face a marginal headwind, but one that would be hard to measure and separate from the other contributors to GDP and consumer spending over the next several years.”
The only issue the reported had was Trump’s proposal to negotiate federal government drug pricing, citing:
“While our portfolios have little exposure to the current “bad apples” issue in pharma, we do have exposure to the second major current challenge, and that is negotiated Medicare pricing.”
“Our best current estimate is that a big haircut to Medicare pricing would hit the earnings of our companies by no more than 5%, and in most cases, by much less. A 5% hit is one year’s worth of projected growth, but it is not the end of the world. In short, negotiated Medicare drug pricing would not have a huge impact on us, but it could quite possibly end up being a Modest Negative.”
The report concludes, “[I]f we tally up the current proposals, we come up with two modest positives, one modest negative, and several minimal impacts. That’s doesn’t mean that the actual proposals, when they are detailed and make their way through the political process, won’t come out quite differently, but for now, it’s more good than bad.”
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