NEW YORK — Wall Street shrugged off President Donald Trump’s tax plan announcement on Wednesday as investors decided the policies were already well known while the future of a sweeping overhaul remains deeply uncertain even with Republicans in full control in Washington.
Stocks barely moved as Treasury Secretary Steven Mnuchin and National Economic Council Director Gary Cohn spoke for 30 minutes about a one-page paper on Trump’s tax plan that largely mirrored what the president promised during the campaign and lacked many key details.
There were some changes from the campaign plan, including a different set of rates for individual taxpayers. Trump also suggested ending the federal deduction for state and local taxes, a change that would slam residents in high-tax states including New York, New Jersey and California. The prospects for such a major change to the tax code are slim. And the boldest elements in the plan, including a cut in the top corporate rate from 35 percent to 15, percent have been known for months.
Details including how to make up for the trillions in lost revenue from slashing corporate taxes were left to another day. The Dow, S&P 500 and Nasdaq indices were all largely unchanged in afternoon trading after the tax announcement.
Market gains may also have been limited by a POLITICO report earlier in the day that Trump could pull the U.S. out of NAFTA, which could affect big companies that rely on Mexico for parts of their supply chain.
But mostly traders and money managers said the announcement was underwhelming.
“There is really not much new here and there still is no clear path to getting this through Congress,” said Douglas Kass of hedge fund Seabreeze Partners. “There is little chance of this being introduced in Congress anywhere near the context in which it’s been proposed today given the likely deficit unfriendly implications. There will be heated opposition including from some quarters within Trump’s own party.”
House Speaker Paul Ryan (R-Wis.) and other Congressional GOP leaders spoke on Wednesday of their broad agreement with Trump’s desire to lower corporate and individual tax rates.
“The principles outlined by the Trump Administration today will serve as critical guideposts for Congress and the Administration as we work together to overhaul the American tax system,” Ryan said in a statement along with Senate Majority Leader Mitch McConnell (R-Ky.) and leaders of the tax writing committees.
But the widely held view on Wall Street now is that Congress will only be able to manage a modest cut in the corporate rate funded at least in part with revenue from a repatriation of foreign earnings currently held abroad.
And stock market valuations, which rose sharply after Trump’s election, already reflect the belief that a more modest plan will pass, limiting the ability for any gains following Wednesday’s rollout.
“This was about ticking a box ahead of the first 100 days and overall it’s pretty much a shrug today,” said Michael Obuchowski of Merlin Asset Management. “But this is at least a move in the direction of showing that the administration will put pressure on to get at least something done this year. And if you have generally lower corporate tax rates, money coming back from offshore and less regulation, that’s pretty stimulative.”
While any final tax plan may include some increased revenue, there is also concern among market analysts that giant unfunded tax cuts may not produce the kind of growth Republicans are counting on and could increase deficits and further bloat a federal debt that is already over $19 trillion.
Mnuchin and Cohn pledged that any tax overhaul would reduce the nation’s debt-to-GDP ratio but they offered few details about how that would occur, repeatedly promising to fill in details in the months ahead as they work with Congress on putting together actual legislation. Higher debt and deficits tend to lead to higher interest rates that can limit economic growth.
“Markets are waiting for three things. The first one is details of the plan, the second is prospects for passage and the third is how the high stakes game between growth and debt plays out,” said Mohamed A. El-Erian, chief economic adviser at Allianz. “What we know from history is that tax cuts alone are not sufficient to promote growth.”
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