The latest corporate tax cuts proposed by the United States House of Representatives and Senate have been consolidated into a single bill, and could be passed into law by President Trump before the end of 2017. The tax cuts were a major part of President Trump’s campaign, as he promised to reduce taxes across the board for private tax payers and corporations.
When the final drafts were revealed in the House and Senate, analysis showed that not everybody would receive generous tax cuts, however, corporations would receive a significant rate slash. The Republican party and President Trump hope that the cuts will entice more companies to invest in the United States, while also attracting offshore operations back to American soil. The proposed cut will change the corporate tax rate from 35%, down to 21%.
Although we’re yet to see the impact on immediate economic growth, the stock market has shown signs of optimism, even before the bill has passed into law.
Earlier this week on Monday the 18th of December, stocks surged on the back of investor confidence. The Dow Jones rose around 200 points, making for a total increase of around 1%. This increase has come at the end of a positive year where the Dow has risen by more than 25%. Companies leading the increase are Apple, McDonald’s, Boeing, Walmart, Caterpillar, and Visa.
The Nasdaq has also grown this week, as well as throughout the year. Tech stocks have been excellent performers, with stocks in Google, parent company Alphabet, Facebook, Netflix, and Amazon performing well. Increases here have been even better than the Dow, and is currently tracking at 30% for the year.
It’s not just tech companies and traditional enterprises that have grown this week and throughout 2017. Financial stocks are some of the highest gainers. Stocks in Wells Fargo, JPMorgan Chase, Bank of America, and Citigroup all went up more than 1% on Monday.
Corporate Tax Cuts: Are Increases Sustainable?
Stocks are always volatile, but a growing economy and better corporate tax environment could make for an interesting landscape in 2018. Companies will be more willing to invest back into the US economy, and a new 15% tax rate on foreign profits could even improve the overall cash flow back into the country. This could help to prevent some of the largest companies from creating offshore companies in known corporate tax havens like the Republic of Ireland.
These latest stock increases are promising and could be a sign of what is to come. Investors may be wise to hold stocks before selling at the end of this year, because eventual passing of the new tax bill could allow for even better gains in 2018.
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