One day after we reported that "Congressional Republicans reached a tentative tax agreement", the news of which sparked another risk surge into the close of trading, moments ago we got the second tax deal in 24 hours - if only for algo consumption - when the AP reported that House and Senate GOP leaders have reached a "tentative deal" on tax overhaul "in principle."
The AP quoted a "person familiar with the conversations who asked not to be named because the discussions are private" and who is certainly long stocks, as the replica headline was enough to send the S&P to new all time highs.
The agreement "in principle" paves the way for final votes next week to slash taxes for businesses and give most people tax cuts starting next year. Top GOP aides say the deal was reached on Wednesday. They spoke on condition of anonymity because they were not authorized to speak publicly about the deal. Details still need to be drafted and assessed by congressional scorekeepers but the final House-Senate compromise is on track to be unveiled this week.
The details, virtually identical to what we reported yesterday: the top individual tax rate would be lowered to 37% as and set the corporate tax rate at 21%, slightly higher than the 20% initially favored by President Trump. The mortgage interest deduction would be capped at $750,000, a mid-point compromise between the Senate and House bills.
The deduction for pass-through companies will be set at 20 percent, somewhat lower than the 23 percent included in the Senate-passed bill. That will be offset by lowering the top individual income rate to 37%. It is now 39.6%.
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Still, lawmakers will need to get a cost analysis of their agreement, so it’s not yet definite, "the person" said, who clearly gets around and was this time quoted by Bloomberg.
And since lawmakers still need to get a cost analysis of their agreement, not only is today's "tentative deal" not yet definite, but it will almost surely be unwound when someone actually brings a calculator into the room.
Curiously, after jumping higher, stocks have since faded the kneejerk reaction higher, perhaps realizing that the more fiscal stimulus that is injected, the more tightening the Fed will have to unleash in the coming months as inflation become red hot.