Stock Buybacks, a New Target for Congress; Congress Rebels, a Turning Point for Donald Trump
Author: Greg Valliere
February 13, 2019
THE TRUMP TAX CUTS helped to turbo-charge the economy last spring and summer, but as the impact wears off and tax refunds look disappointing, the unintended consequences are becoming more apparent. One that has attracted increasing attention on Capitol Hill is the widespread corporate reliance on stock buybacks, to the detriment of investment and higher worker compensation.
NOT JUST DEMOCRATS ARE OPPOSED TO THE PRACTICE: Even Marco Rubio, the Republican Chairman of the Senate Small Business Committee, has joined Bernie Sanders and Chuck Schumer in an effort to decrease the preferential tax treatment of stock buybacks. Rubio’s bill would treat buybacks as dividends, not capital gains.
THE GOAL IS MORE BUSINESS INVESTMENT, so the Rubio bill would extend a provision scheduled to expire in 2022 that allows businesses to fully and immediately deduct their expenses. Rubio’s bill would make this provision permanent and would expand the types of investments eligible for the deduction.
OUR SENSE IS THAT THE RUBIO BILL HAS A CHANCE OF PASSAGE: There’s a pervasive view on Capitol Hill that companies are spending too much of their tax windfall on stock buybacks, with shareholders benefiting more than workers. The politicians surely can read the polls, which show growing antipathy toward big business, so we think this measure could move in the next couple of years as the Trump tax cuts attract increasing opposition.
THE CONGRESSIONAL REBELLION: We have insisted that there wouldn’t be another lengthy shutdown, for one major reason: Congress has revolted against Donald Trump, who still could veto the wimpy border deal — but that veto would get over-ridden. Both parties are unified: the shutdown was a disaster, they agree. So Trump will have to swallow a deal that gives him far less than what he could have gotten late last year.
THIS IS A TURNING POINT FOR TRUMP: It’s not complicated — he doesn’t have the votes, certainly not in the liberal House and not even in the Senate, which doesn’t want 800,000 people to lose their paychecks again. The key player, as usual, is Majority Leader Mitch McConnell, whose ultimate allegiance is to his members, not Trump.
THE PRESIDENT STILL HAS A LOYAL SUPPORTERS, about one-third of the American electorate, and he has the militant talk show hosts who have given him consistently bad advice, as the Wall Street Journal lead editorial notes this morning. But Trump has gotten a wake-up call: he has to deal with the increasingly feisty Congress, and whether he has those dealmaking skills is unclear, to be charitable.
CHINA TRADE NEWS: Trump confirmed yesterday what we have long suspected: there simply isn’t enough time to finish negotiations with China on a trade deal before the March 1 deadline, so an extension is probable. Trump will milk this one; there will plenty of drama until a climactic summit with Chinese President Xi in a few months.
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), AGF Investments America Inc. (AGFA), AGF Investments LLC (AGFUS) and AGF International Advisors Company Limited (AGFIA). AGFA and AGFUS are registered advisors in the U.S. AGFI is a registered as a portfolio manager across Canadian securities commissions. AGFIA is regulated by the Central Bank of Ireland and registered with the Australian Securities & Investments Commission. 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.
©2021 AGF Management Limited. All rights reserved.
