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The real reason Wall Street is euphoric over the tax plan

Rogue Valley

Rogue Valley

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The real reason Wall Street is euphoric over the tax plan

by Matt Egan and Danielle Wiener-Bronner
December 3, 2017

Tax euphoria: Wall Street is seriously pumped about the tax plan making its way through Congress.

It's not really because investors think the proposed tax overhaul would unleash enormous growth by creating new jobs and stronger wages. Most established economists have thrown water on that theory. That's because there's no guarantee companies would use their savings from lower corporate tax rates and repatriated foreign profits to create jobs. In fact, few CEOs have publicly made any such promise. But Wall Street can cash in, even if Main Street doesn't. Markets are betting that companies would use their new spare cash to help investors: by purchasing boatloads of stock and beefing up their dividends. Both outcomes can help propel the soaring stock market to new heights, even if jobs and wages don't follow suit. "The additional cash will definitely help buybacks," said Howard Silverblatt, senior index analyst at S&P Dow Jones Indices. Investors love stock buybacks because they're less risky than investments in new projects that may or may not work. Even better, buybacks make earnings per share, a key measure of profitability, instantly look better simply by reducing the number of shares in the ratio. Underlying profits don't even need to improve.

Stock buybacks have been a centerpiece of the current bull market. S&P 500 companies have repurchased an incredible $3.8 trillion of stock since the end of March 2010, according to Silverblatt. This key source of market support has been slowing, but the tax bill would likely put CEOs under pressure to ramp it back up. Silverblatt joked that the big winner from the GOP tax plan would be Home Depot because companies will have to "reinforce their boardroom doors" from all the shareholders screaming for buybacks. What about hiring and boosting wages? The outlook looks less certain there. The unemployment rate is at 4.1% and job openings are at an all-time high. And it's not like companies are cash-strapped. Even before potential tax cuts, S&P 500 companies have a record $1.5 trillion in cash. "Companies already have enough money to do whatever they want now," said Silverblatt.
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Anyone who thinks the [permanent] GOP tax cuts to corporations will 'trickle down' and create more jobs with better wages is sorely mistaken. The corporations will take care of their own financial health first and then engage in overseas investments, tender offers for takeovers and mergers, invest in production-automaton and assembly-line robotics.
 
Which is a fancy way of saying, the rich will get richer, the middle class will get smaller, and the poor will get poorer.
 
KevinKohler said:
Which is a fancy way of saying, the rich will get richer, the middle class will get smaller, and the poor will get poorer.
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Yep, and donations (legal bribes?) to incumbent congress critters to keep it that way will improve.
 
ttwtt78640 said:
Yep, and donations (legal bribes?) to incumbent congress critters to keep it that way will improve.
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American exceptionalism: having the best government money can buy
 
Rogue Valley said:
The real reason Wall Street is euphoric over the tax plan



Anyone who thinks the [permanent] GOP tax cuts to corporations will 'trickle down' and create more jobs with better wages is sorely mistaken. The corporations will take care of their own financial health first and then engage in overseas investments, tender offers for takeovers and mergers, invest in production-automaton and assembly-line robotics.
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this is correct. workers who aren't already in a position to demand a higher salary won't get a raise just because. the extra cash will probably benefit upper management, though. having more capital to work with will probably speed up automation, as well, since bringing down operating costs is tops on the list for some corporations.

i do support a cut to the corporate rate if it's done the right way, however. the current rate is stupidly high when compared to Europe, and it has resulted in big corporations playing accounting and headquartering tricks to avoid it. i support cutting the corporate rate wile transferring that burden to individuals so that it's a revenue neutral situation. part of that would be paid for by taxing all individual income as income above a cap. the current bill doesn't even approach revenue neutral and is packed with other awful Republican priorities, so i completely oppose it.
 
Rogue Valley said:
The real reason Wall Street is euphoric over the tax plan



Anyone who thinks the [permanent] GOP tax cuts to corporations will 'trickle down' and create more jobs with better wages is sorely mistaken. The corporations will take care of their own financial health first and then engage in overseas investments, tender offers for takeovers and mergers, invest in production-automaton and assembly-line robotics.
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you don't understand that capitalism is competitive. If one firm uses tax savings to lower price and increase wages and another doesn't one will be driven into bankruptcy. Do you understand.
 
James972 said:
you don't understand that capitalism is competitive. If one firm uses tax savings to lower price and increase wages and another doesn't one will be driven into bankruptcy. Do you understand.
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Hmm... what if one firm lowered prices even more by not increasing wages?
 
ttwtt78640 said:
Hmm... what if one firm lowered prices even more by not increasing wages?
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firm with lowest prices will succeed obviously. Do you know what your point is? Can you tell us?
 
Helix said:
packed with other awful Republican priorities, so i completely oppose it.
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name the most awful Republican priority?
 
Helix said:
the current bill doesn't even approach revenue neutral.
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Democrats oppose this. Republicans have introduced 40 Balanced Budget Amendments and Democrats have killed every one of them. What does that teach you?
 
ttwtt78640 said:
That the "increasing wages" part was totally unnecessary.
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if a company does not increase wages as much as possible other firms will and the company will go bankrupt. Do you understand?
 
Rogue Valley said:
The real reason Wall Street is euphoric over the tax plan



Anyone who thinks the [permanent] GOP tax cuts to corporations will 'trickle down' and create more jobs with better wages is sorely mistaken. The corporations will take care of their own financial health first and then engage in overseas investments, tender offers for takeovers and mergers, invest in production-automaton and assembly-line robotics.
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So...this article...written in early December, before anyone had any idea what the final tax cut would be...is based on speculation.

You won't mind if I wait for actual numbers, will you? You know...facts?
 
James972 said:
name the most awful Republican priority?
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the fact that instead of an adjustment of the corporate rate to be paid for in other ways, this is nothing more than another Republican tax cut for the rich which will increase deficits in years to come. also, they used it to to kill the health care mandate, which is a separate issue. that will have some real consequences for the middle class, too.

James972 said:
Democrats oppose this. Republicans have introduced 40 Balanced Budget Amendments and Democrats have killed every one of them. What does that teach you?
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it's more evidence that neither side can claim to be deficit hawks, which i already knew. the republicans used to pretend to have that moral high ground, but they can't do that going forward. not that they won't probably try to use their new deficits to hurt social programs. that's speculation at this point, though. i suppose that we'll find out soon enough.
 
ttwtt78640 said:
Nope - see Walmart.
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see them and observe what exactly?? You want them to pay more and go bankrupt to Amazon even faster?? You want our biggest employer to go bankrupt?
 
Helix said:
, this is nothing more than another Republican tax cut for the rich
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another??? how many could there have been given that the top 1% pay 42% of federal income tax and our corporations face the highest taxes in the world?? See how you've been mislead?
 
Helix said:
the fact that instead of an adjustment of the corporate rate to be paid for in other ways, this is nothing more than another Republican tax cut for the rich which will increase deficits in years to come.
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Actually Republicans would love to decrease govt spending and reduce the deficit but Democrats oppose any kind of fiscal responsibility. They need to always spend more on crippling welfare to buy more votes. This is their formula to stay in power and subvert America.
 
Helix said:
they used it to to kill the health care mandate, which is a separate issue. that will have some real consequences for the middle class, too.
.
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Republicans want to switch to capitalist health care to reduce prices 80% or so. Do you understand?
 
Helix said:
it's more evidence that neither side can claim to be deficit hawks, which i already knew.
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actually if Republicans introduced 40 Balanced Budget Amendments and Democrats killed every one of them that's evidence that Republicans can claim to be deficit hawks and Democrats cant. Do you understand now?
 
Helix said:
the republicans used to pretend to have that moral high ground, but they can't do that going forward. .
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actually 100% of the effort to balance budgets came from Republicans so they certainly can claim the moral high ground going forward.
 
James972 said:
Republicans want to switch to capitalist health care to reduce prices 80% or so. Do you understand?
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i understand that this post is so patently ridiculous that i have little desire to engage you on the topic of health care.
 
Helix said:
i understand that this post is so patently ridiculous that i have little desire to engage you on the topic of health care.
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you didn't realize that socialism makes people very very poor??? and thus people can afford very very little???. We have socialist health care . That is why it so expensive. Capitalism would cut prices about 80%
Do you understand now?
 
Helix said:
i understand that this post is so patently ridiculous that i have little desire to engage you on the topic of health care.
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of course if it was ridiculous you would not be so afraid to say why.
 
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