Tax Cuts in the Jaws of Victory

The Tax Cuts and Jobs Act passes the Senate with last-minute modifications, preserving the pro-growth centerpiece from the House’s version: cutting the corporate tax rate to 20%. From here there are both easy and hard legislative paths, and it is unknown what the GOP will do – but we remain confident that tax cuts will be enacted this year. Markets are now expecting it too, so there may not be much more upside when it happens, maybe even a “sell on the news” reaction, producing a buyable dip. Trump may have opened the door to a last-minute negotiation with Democrats that would preserve the state and local tax deduction. That would be an upside surprise in the short-term. Longer-term, markets are not adequately anticipating the pro-growth power of the supply-side incentive effects of cutting business tax rates.