Tax reform is on the mind of every investor this week, with U.S. companies hoping for a major earnings tailwind from a cut in the corporate tax rate to as low as 20 percent. But things in Washington rarely go according to plan. As the battle over taxes rages on, Height Securities analyst Stefanie Miller discussed three critical questions investors are asking this week in a Thursday note.
First, after the Senate voted narrowly to proceed with the House’s tax reform bill Wednesday night, investors are asking when the next critical vote is occurring. That vote will likely take place no sooner than late Thursday night or even sometime Friday, Miller said.
With Tuesday’s motion-to-proceed vote split strictly by party lines in the Senate, the next question investors are asking is whether or not all Senate Republicans will continue to toe the party line to get the bill passed. Republicans learned the hard way on health care reform how few votes they can afford to lose.
“It is certainly indicative this time around of how popular the idea of tax reform is within the Republican conference that no Republicans wanted to be on record as voting No just yet,” Miller said. But the next vote is the one that matters, and investors shouldn’t read too much into the MTP vote on Wednesday, she said.
The final question that's critical for investors is whether Republicans will be forced to compromise on their proposed 20 percent corporate tax rate in order to secure the necessary votes to pass the bill. The Wall Street Journal reported Wednesday that Senators had been discussing raising the corporate rate to 21 or 22 percent in order to provide higher child tax credits for individuals. Republicans will likely try to keep corporate and personal tax negotiations segregated, Miller said.
“We think instead if the corporate rate is going to go up a percentage point or two, it would be used ultimately to offset changes on the corporate side."
Investors certainly seem to expect good news out of Washington. The SPDR S&P 500 ETF Trust SPY is up 19.8 percent year-to-date, and is up another 1.9 percent in the past five trading sessions.
© 2022 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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