Is Another Tax Cut Possible?
Author: Greg Valliere
August 19, 2019
REGULAR READERS KNOW we’ve been predicting that the Trump Administration may propose another tax cut — and sure enough, economic adviser Larry Kudlow disclosed yesterday that “we’re looking at it.”
GRASPING AT STRAWS: The White House seemingly succumbed to the recession hysteria last week, as jitters rose about a slowdown. We don’t think a recession is imminent; the Atlanta Fed’s “GDP Now” indicator is predicting a 2.2% growth rate in the third quarter, consumers are spending strongly, and unemployment is at 3.7%.
BUT THE CHINA TRADE WAR is taking a toll on business confidence and investment, and President Trump said yesterday that he’s not ready for a deal with Beijing — which raises the threat of softening economic growth in the U.S., far below the pace Trump wants heading into his re-election bid. So all options are on the table, including a tax cut.
TRUMP PROPOSED A 10% ACROSS-THE-BOARD TAX CUT last October, in an unsuccessful effort to boost Republicans in the fall election, and he may propose one again. For it to have any chance of enactment in the House, it would have to be targeted exclusively at the middle class — and even then, we would anticipate fierce resistance from Nancy Pelosi and her troops; they would demand tax hikes on business and the rich, a non-starter for most Republicans.
BUT TRUMP WOULD EXPLOIT the following narrative: The Republicans are the party of lower taxes, while the Democrats want to raise taxes; Pelosi is denying extra income for the middle class. Trump also could include a scale-back of the hated changes to state and local taxes and the mortgage tax break.
DOES TRUMP HAVE OTHER STIMULUS OPTIONS? He could push aggressively for infrastructure spending, which — if enacted by year-end — could add a couple tenths of a percent to GDP by the third quarter of next year. He’s reportedly looking at some type of rebate to consumers to compensate for higher tariffs. He and business leaders will push hard for ratification in the next few weeks of the U.S.-Mexico-Canada trade pact.
AND TRUMP WILL HAMMER AWAY at an old standby — bashing Jerome Powell, hinting that he could demote the beleaguered Fed Chairman. Powell doesn’t doesn’t seem likely to telegraph a 50 basis point rate cut when he speaks in Jackson Hole on Friday morning, still another reason for Trump to rip the Fed. A mere 25 basis point cut next month will not be sufficient for the Commander in Chief.
THE STIMULUS CUPBOARD LOOKS PRETTY BARE: There’s only one credible option if Trump wants stronger economic growth: end the China trade war and curb the pit bull, Peter Navarro. But that’s not imminent, and as long as uncertainty prevails on global trade, Trump will have to live with jittery markets and mediocre economic growth — maybe not a recession, but not what Trump needs to insure re-election.
HIS ONLY OTHER OPTION may be to scare investors that a Democratic president will prompt everyone’s 401(k) accounts to “go down the tubes,” as he asserted last week. Not exactly subtle, but this won’t be a subtle election.
The views expressed in this blog are provided as a general source of information based on information available as of the date of publication and should not be considered as personal investment advice or an offer or solicitation to buy and/or sell securities. Speculation or stated believes about future events, such as market or economic conditions, company or security performance, or other projections represent the beliefs of the author and do not necessarily represent the view of AGF, its subsidiaries or any of its affiliated companies, funds or investment strategies. Every effort has been made to ensure accuracy in these commentaries at the time of publication; however, accuracy cannot be guaranteed. Market conditions may change and AGF accepts no responsibility for individual investment decisions arising from the use of or reliance on the information contained herein. Any financial projections are based on the opinions of the author and should not be considered as a forecast. The forward looking statements and opinions may be affected by changing economic circumstances and are subject to a number of uncertainties that may cause actual results to differ materially from those contemplated in the forward looking statements. The information contained in this commentary is designed to provide you with general information related to the political and economic environment in the United States. It is not intended to be comprehensive investment advice applicable to the circumstances of the individual.
AGF Investments is a group of wholly owned subsidiaries of AGF Management Limited, a Canadian reporting issuer. The subsidiaries included in AGF Investments are AGF Investments Inc. (AGFI), Highstreet Asset Management Inc. (Highstreet), AGF Investments America Inc. (AGFA), AGF Asset Management (Asia) Limited (AGF AM Asia) and AGF International Advisors Company Limited (AGFIA). AGFA is a registered advisor in the U.S. AGFI and Highstreet are registered as portfolio managers across Canadian securities commissions. AGFIA is regulated by the Central Bank of Ireland and registered with the Australian Securities & Investments Commission. AGF AM Asia is registered as a portfolio manager in Singapore. The subsidiaries that form AGF Investments manage a variety of mandates comprised of equity, fixed income and balanced assets.
About AGF Management Limited
Founded in 1957, AGF Management Limited (AGF) is an independent and globally diverse asset management firm. AGF brings a disciplined approach to delivering excellence in investment management through its fundamental, quantitative, alternative and high-net-worth businesses focused on providing an exceptional client experience. AGF’s suite of investment solutions extends globally to a wide range of clients, from financial advisors and individual investors to institutional investors including pension plans, corporate plans, sovereign wealth funds and endowments and foundations.
For further information, please visit AGF.com.
© 2019 AGF Management Limited. All rights reserved.