The stock market has roared higher since the Trump tax cut plans were teased on Thursday, Feb. 9. Since then, the S&P 500 and Dow Jones Industrial Average have surged 1.5% and 1.8%, respectively. They’ve both closed at new all-time highs three sessions in a row.
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But Trump’s tax proposal doesn’t warrant these stock market highs right now. That’s because his plans might not be implemented until late 2017 – at the earliest.
You see, President Donald Trump plans to make drastic changes to U.S. tax policy. In a nutshell, his tax cut plans primarily include…
- Reducing the corporate tax rate significantly from its current 35% level to 15%
- Creating incentives for American businesses to keep operations in the United States
- Producing revenue of more than $1 trillion over the next decade to neutralize the deficit incurred from enforcing the legislation
The biggest reason Trump’s tax plans are pushing markets through the roof is his proposed lowering of corporate taxes. When companies pay the government less money, they can hold onto more of their profits. This can obviously result in higher earnings and higher stock prices.
Investors have been piling into stocks, showing optimism toward Trump’s plans for corporate America. But there are two reasons why Trump’s tax plans may hit a couple snags in 2017.
Here’s why it could take up to a year for Trump’s tax plans to be implemented…
2 Reasons Why the Trump Tax Cut Plans Won’t Go into Effect in 2017
The first reason Trump’s tax plans won’t be effective anytime soon is that Congress wants to deal with another big issue first: Obamacare.
You see, Republicans have long despised Obamacare, which is formally called the Affordable Care Act. Although they oppose many facets of Obamacare, they mainly oppose how it has raised taxes and increased the national debt.
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That’s why the Republican-majority Congress has said it wants to focus on repealing Obamacare before working on the Trump tax cut plans. It wants a new healthcare bill on hand before removing Obamacare. This means Congress will likely be spending most of the year drafting up a replacement healthcare policy before new tax policy.
The second reason for the delay in Trump’s tax plans is Congress’ budget. House Speaker Paul Ryan said Congress won’t be able to draft a new tax bill until the spring budget is approved.
In other words, the government might not start writing up the Trump tax cut plans until fall 2017 at the earliest. From there, they may not be formally implemented until 2018.
Regardless of its timeline, the tax plan is one of Trump’s many policy announcements that have sent the stock market soaring. His intention to scale back the Dodd-Frank Act pushed the Dow Jones up nearly 1% on Feb. 3.
But Trump’s unpredictability has also dragged certain stocks lower. When Trump tweets disapproval of a company, its shares typically nosedive. On Dec. 23, 2016, shares of Lockheed Martin Corp. (NYSE: LMT) fell 1.3% to $249.59 after Trump tweeted about the high cost of the company’s F-35 program.
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