President Trump didn’t upset financial markets this week. Hurrah!
There were no new threats to impose tariffs, tear up trade deals or punish American companies. But a curious new idea is now circulating in Washington: Republicans need to pass another round of tax cuts before the midterm elections in November. Greg Valliere of Horizon Investments predicts the House of Representatives will pass a new set of tax cuts by summer, with a tougher path through the Senate.
This reeks of desperation, which is why we give this theoretical tax-cut bill our worst grade on the Trumpometer: SAD!
For those with short memories, Congress just passed a big set of tax cuts, which will save taxpayers $1.8 trillion over a decade, while costing Uncle Sam that much in lost revenue. That legislation slashed the corporate tax rate from 35% to 21%, which sent the outlook for corporate profits soaring. It also cut taxes for about two-thirds of individuals, with the typical family getting a tax cut saving about $1,300.
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So what’s the problem? Well, the tax cuts are unpopular. Republicans thought voters would reward them for putting more money in people’s pockets, yet just 27% of respondents said they approve of the new tax law in a recent NBC/Wall Street Journal poll. A recent Yahoo Finance survey found three main objections. People think the tax cuts favor the wealthy over the middle class. They don’t like the burden placed on future taxpayers. And they’re suspicious because individual tax cuts are temporary, while business tax cuts are permanent.
So Republicans want a redo. A new tax law might address some voter concerns, by making the individual tax cuts permanent and giving lower-income earners more of a break. But such cuts would add even more to Uncle Sam’s annual deficits, which are approaching $1 trillion per year. And they’d be a tacit admission by Republicans that maybe we blew it the first time around. That’s one expensive mulligan.
Two other pieces of Trumponomics news this week. First, Trump reversed an earlier reversal and said he opposes the Trans Pacific Partnership after all, once and forever, never to be persuaded otherwise, unless he changes his mind again. Trump railed against the TPP as a candidate, yet a couple weeks ago, said he might be open to joining after all. Then, while meeting with Japanese Prime Minister Shinzo Abe this week, he said, never mind. The TPP isn’t for him. He’s not a globalist after all.
Trump also went after OPEC, saying in a tweet that the oil cartel “is at it again.” We think Trump means OPEC is trying to push oil prices higher, which it does from time to time. But there’s really no need for Trump or anybody to do anything about it. Prices for West Texas crude are at a modest $68 or so, which is midway between the high of $110 in 2014 and the low of $28 in 2016. Markets and motorists can easily live with $68 oil.
But it might not stay that high. With all the fracking capacity that has come online in recent years, drillers typically pump more oil as the price goes up, because they make money doing so. And the increased supply tends to push prices down. OPEC is still important, but it’s less dominant than it used to be, because there’s more non-OPEC oil on the market. Trump can relax.
Rick Newman is the author of four books, including Rebounders: How Winners Pivot from Setback to Success. Follow him on Twitter: @rickjnewman