Buy the Rumor Sell the Fact
One of the things that could de-rail Wall Street enthusiasm is if Republicans are not able to deliver on the promised tax cuts. Of course, even if they are able to deliver, it will be a, “buy the rumor, sell the fact”. Especially since the fact is not going to deliver the promises of the rumor, which is more economic growth. These tax cuts are not going to grow the economy because they do not shrink the size of government.
When the Fed Loses Control of the Bond Market
Government continues to grow, despite the tax cuts, meaning that government will have to find an alternative source of revenue, and that alternative source will be deficit spending and money printing, which will be negative for the economy. Ultimately, it will also be negative for the markets – maybe not in the short run, because money printing has not proven to be a negative for the markets thus far; it will only be a negative when it backfires and the Federal Reserve loses control of the bond market and when it can no longer pretend that inflation does not exist.
No Slam Dunk
When you look at the prospects for the tax cuts, I think the Senate is going to vote on Thursday, whether or not to pass its version, of course, if it doesn’t make it through the senate, then it’s done. Even if it makes it through the Senate, it needs to go through a reconciliation process so that the differences between the Senate and the House versions can be ironed out. Then they have to hope to get everybody to vote for the reconciled version, which is no slam dunk. Apparently, there are about 6 senators who are not fully on board with these tax cuts, who have expressed some reservations. So they have to get most of those 6, otherwise it is not going to work.
Individual Tax Cuts Expire in 2025
One of the more interesting discussions has to do with the fact that in the Senate’s version, the individual tax cuts, most of them, anyway, expire in the year 2025. So that’s not even a full 10 years from now. Why is that? Why are they making the individual tax cuts expire? What is even worse politically, is that corporate tax cuts are theoretically permanent, or at least they do not come with an expiration date. This is making for bad public relations on all the talk shows: “It’s permanent for the rich corporations, but it’s only temporary for individuals. It shows that by 2025, a lot of individuals who are getting tax cuts, will actually end up paying higher taxes.
Now the way the Republicans are responding to this criticism just shows you how disingenuous this whole process is. The reason the Senate has to make the individual tax cuts temporary is so that the bill does not increase the deficit by more than $1.4 trillion over these 10 years, so to do that, they had to make the individual tax cuts expire, during these 10 years. During the entire 10 year window the deficit would go up by less than it needs to in order to be able to be approved according to the voting process.
The Whole Thing is a Farce
But at the same time, the senators are saying, “Don’t worry about the fact that these tax cuts are temporary because no future Congress is going to allow them to expire. In other words, they are admitting that the whole thing is a sham, because they are using the expiration period to make the impact on the deficit smaller. But they are saying “Oh, it’s really not going to make the deficit smaller because we’re not going to allow the tax cuts to expire the way we’ve written it into the bill. In order to be able to pass it, we are going to cancel it, which means the whole thing is a farce. It means the Senate’s version of the bill adds much more to the deficit than what the Senators are claiming in order to get the thing passed.
Government on a Credit Card
I’ve made this point before: No tax cuts are permanent. They are saying, “You can have all this government, and you don’t have to make any payments until 2025.” This is not tax relief. they are just putting government on a credit card.