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SMART INSIGHTS FROM PROFESSIONAL ADVISERS

The Trump Tax Plan: Where’s the Beef?

The lack of details in President Trump’s just-announced tax plan raises more questions than answers, but one thing's evident: The proposal shows the hallmarks of “trickle-down economics.”

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On Wednesday, April 26, President Trump released his long-awaited tax proposal … well, sort of. The one-page outline provided by the White House should not be viewed as a plan, rather we should see it as a beginning of negotiations (after all Mr. Trump has a self-proclaimed love for negotiations).

SEE ALSO: Making Next Year's Taxes Less Painful

Here is some of what we know so far:

  • The plan would call for a reduction in tax brackets from the current seven to three: 10%, 25% and 30%.
  • It would eliminate most line-item deductions — including those for state and local taxes, sales taxes, gambling losses and moving expense — with the noted exceptions of the mortgage interest deduction and charitable gift deduction.
  • It would significantly raise the standard deduction, which Americans can use to reduce their taxable incomes.
  • And on a corporate level, President Trump is following through on his campaign pledge to greatly reduce corporate taxes – from 35% down to 15% — as well as offering a “one-time” opportunity for corporations to repatriate offshore cash to the United States at a 10% tax rate.

What is glaringly missing from this outline are the revenue offsets, i.e. how we would pay for all of this. Unless the plan includes specific revenue-generating items, one has to assume that this “plan” is, in essence, one giant turbo-charged trickle-down economics plan (a long favorite economic theory among Republicans).

On the personal income tax front, it is hard to argue with the need for a simpler more straightforward tax code (although I suspect the good folks at H&R Block (ticker: HRB) and Jackson Hewitt will protest loudly). Eliminating or significantly restructuring the convoluted line-item deduction mechanism and alternative minimum tax is more than needed. And in theory, the end result could be a “wash” for many as line-item deductions are eliminated in favor of a lower tax bracket. The devil will be in the details, and there aren’t any of these yet (on Thursday morning White House Budget Chief Mick Mulvaney said the vagueness of the proposal is intentional).

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On the corporate side, the issues and shortsightedness are much clearer, and have a historical track record. In 2004 Congress, at the urging of then President George W. Bush, passed the repatriation tax holiday, which brought back some $312 billion into the United States. Predictably, very little of this money was utilized to create jobs, as investment or capital expenditure. Rather, it was used for share buybacks, increased and one-time dividends and generally for the benefit of shareholders.

President Trump’s proposal seems to follow a similar path and it offers flawed expectations that this time around corporations will act in the country’s best interest, as opposed to their own and their shareholders’.

Perhaps if President Trump attaches certain investment mandates or penalties for misappropriating the funds the plan could be very beneficial to our economy. But as it stands now, the premise of trickle-down economics is unlikely to have results that differ from previous engagements of this policy.

It’s impossible to give President Trump a “grade” on his tax proposal, as it isn’t much of a proposal at all yet. However, from a market and investor perspective, it is one more piece of “hope and good news” that could help keep this bull market alive and drive stocks materially higher.

See Also: Donald Trump’s Presidency and Your Investment Portfolio

Oliver Pursche is the CEO of Bruderman Brothers LLC and Bruderman Asset Management LLC, a New York-based, broker-dealer and investment advisory firm. The firm's business segments consist of advisory, investment management, investment banking, merchant banking, and consulting services. As a frequent contributor to CNBC and Fox Business and a regular columnist for various print and online outlets, he is a recognized authority on global affairs and investment policy and the author of Immigrants: The economic force at our door.

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