US equity markets ran up overnight but appeared to hit a 'sell the news' moment as President Trump's tax plan was leaked.
For now, it seems like the takeaway is that Trump wants Corporate/Small Business cuts at all costs and is willing to stick it to rich people with "at least as progressive" actions, if that's what it takes to get the cuts. As Wall Street analysts generally agree for now, the devil is very much in the details... and those are yet to come.
COWEN (Chris Krueger)
- Offers initial takeaways: "The low bar was met" but the devil’s in the details, with no explicitly detailed offsets and no revenue/deficit number
- Creates way more questions than answers although progress has been made as 9 pages tops the 5-paragraph precis released earlier this year
- No revenue number makes the rest "almost an academic exercise"; highlights there was nothing on Obamacare taxes or capital gains, no Roth-ification, bank tax or border adjustment
- Still believes nothing will pass on taxes this year or next
GOLDMAN (Jan Hatzius)
- Prior to release, had written that proposal seemed likely to reduce revenues by ~$4t over 10 years; by contrast, debate in Congress has ranged from revenue-neutral tax reform to recent proposal allowing for $1.5t tax cut over 10 years
- Sees proposal as having to be scaled substantially to fit within fiscal constraints Congress is likely to impose
- Even so, tax reform is "finally starting to move," recent developments suggest rising probability tax legislation will be enacted by early 2018
KBW (Brian Gardner)
- Reminds investors outline was expected to be more of a wish list than a final document; tax rates in plan are subject to change, may rise once Congress actually writes legislation; sees corporate rate as likely to be higher than 20%
- Had expected most of details of other tax policy issues (deductions, exemptions, etc.) would be left out, since policymakers didn’t want to give interest groups targets to shoot at this early in the process
BMO (Aaron Kohli, Ian Lyngen)
- Prior to release, had "plenty of open questions," including the Senate reaction, whether there’s enough support within GOP rank- and-file to push reforms through in the House, and how cuts will be accounted for in offsetting revenue
- Expects debate on eliminating state/local tax deductions; also worries proposal is simply a "more exacting" version of Trump’s tax reform wish list; "it’s always folly to presume that precision implies accuracy and we fear that’s what the markets are currently trading"
- BMO on board with notion that a sizable cut will boost inflation over the next few years; not as certain anything more than minor cut will pass
HEIGHT SECURITIES (Stefanie Miller)
- Suggests investors "take a step back and evaluate" why Big Six are releasing tax framework; the blueprint’s purpose isn’t to set final policy details, but rather to advance the process and give Freedom Caucus Members cover
- Also provides tax writers opportunity to offer opening salvo ahead of more serious negotiations down the road
- No matter what’s in the blueprint, still puts 75% odds on Congress passing measure that cuts corporate rate to at least 25%