Say or think what you like about him, but it's pretty obvious Donald Trump doesn't believe in the softly, softly approach! So the bold announcement to reduce US corporate tax rates to 20% certainly fits his style. Of course what remains to be seen is his ability to deliver, and if he manages to do so, what will be the flow on effects on both the US, and then the global economy.
Given this was a Trump announcement there was of course more rhetoric than detail, and the answer to the first question lies in the ability to deliver politically. We will leave the judgement on his political ability to others and take just a quick look his ability to deliver economically:
We're assuming Trump's working on the premise that a corporate tax rate of 20% will "make America great again" by incentivising US companies to invest in America, and subsequently to hire American workers, leading to growth. As a result he's hoping the circle will be complete, and the budget will balance. However that's not a fait accompli, and the question will be how's he going to pay for it?
From a market perspective the risk lies not in the potential that the equity market doesn't like Trump's lower corporate taxes, but that the bond market doesn't. Bond markets have a nasty habit of upsetting equity markets, so it's worth keeping a close eye out for higher than expected interest rates.
Domestically in Australia Trump's move has put our antiquated, overly complicated and damaging taxation and political position into stark relief. The current government aims to reduce the corporate tax rate to 25% over 10 years, and isn't even assured of getting that past the cross benches in the Senate.
As Hedge Clippings has banged on about for as long as we can remember (which isn't that long these days) Australia's taxation system is a dud thanks to successive governments of both political persuasions which have failed to grasp the nettle, preferring to dilly dally around the edges, and adding complication onto complication.
Where's Donald when we need him - or on second thoughts, let's not go there!
