Tax Cuts Still on the Table for 2020; Crucial Election Today in NC
Author: Greg Valliere
September 10, 2019
THE IDEA THAT WON’T DIE: Treasury Secretary Mnuchin confirmed yesterday that tax cuts are still very much on the table for 2020. We’re hearing that Larry Kudlow and other Trump Administration insiders are scrambling to come up with policies to combat an economic slowdown — and with third quarter GDP looking like a sub-2% number, their planning has a sense of urgency.
LET’S STIMULATE: As we have written this summer, the White House response to a slowdown will include the following: aggressive pressure on the Fed to cut rates, jawboning the dollar lower, wrapping up trade deals, more spending on defense, infrastructure, domestic programs, etc., and urging more tax cuts in 2020.
WHAT KIND OF TAX CUTS? Any analysis of 2020 tax reductions has to start with assessing the mood in the liberal House, which would only consider middle class tax cuts if they’re offset by tax increases on corporations and the wealthy. That could be a non-starter for Republicans in the Senate, but Trump surely could throw them under the bus; we could envision Trump agreeing to some tax increases in exchange for a broad-based tax reduction that could boost GDP ahead of the election.
WHY WOULD HOUSE DEMOCRATS DECIDE TO DEAL? They might decide that months of Trump tweets, bashing them as opponents of lower taxes for the middle class, could become a liability in the general election. And there’s a constituency for rolling back state and local tax reform, and restoring generous mortgage tax breaks. Those two items could become pivotal in any compromise that Nancy Pelosi — a clever deal-maker — might consider.
AS FOR HIGHER TAXES ON BUSINESS, Trump has gone the populist route before, and he has a poster child for bad corporate behavior — Amazon — which seems to wiggle out of paying any taxes and, of course, is owned by Jeff Bezos, who is Trump’s arch-enemy. Some type of minimum corporate tax hike could have widespread public support, and Trump knows it.
BOTTOM LINE: Expect to see more trial balloons by winter on what could be in a tax cut package. For now, we put chances of passage in the Senate at 60%, with chances in the House no better than 40%. At the least, this could give the president a club — he could argue that it’s Democrats who want higher taxes, while he favors a middle class tax cut.
* * * * *
ALL EYES ON NORTH CAROLINA TONIGHT: There are two special House elections in North Carolina today, with a focus on the 9th congressional district, which has been solidly Republican for years. But GOP candidate Dan Bishop is in a surprisingly tight race, which has prompted Trump and Mike Pence to plunge into the race in the final days.
WE USUALLY DON’T PAY MUCH ATTENTION to special elections; they don’t necessarily reflect sweeping themes. But Trump won the district by 12 points against Hillary Clinton in 2016, and many analysts think a close outcome — or a Bishop loss — would have implications in North Carolina (with 15 electoral votes) and elsewhere.
REPUBLICANS CONCEDE IN PRIVATE that they have little chance of recapturing the House in 2020; 16 GOP lawmakers are leaving, either to run for another office or to retire from politics. If Bishop loses tonight, more GOP lawmakers are sure to leave — and for Trump, a close outcome would send a signal that he will have to spend major time and resources in a state that he needs to win 2020.
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.
© 2020 AGF Management Limited. All rights reserved.
