Investors are in our view quite rightly focusing on the possibility of meaningful Corporate tax cuts in America, possibly during the first quarter of 2018. However, the possibility remains that a deal could be struck before then, and the mere possibility that such an outcome is possible has caused many Global investors to maintain their weightings in US equities.
The potential US tax cuts could of course cause US borrowings to rise, however, this is not the first time that the Republican party has been open to ‘spending more’ in the hope that the economy takes off through higher business confidence, better wages and Capex spending.
In truth, throughout the Western world it seems as if more politicians than ever were willing to consider tax or even benefit measures, which they hope would start a virtuous circle of rising consumer spending and better wage growth trends. For example, recently in the UK, some ‘left leaning ’commentators have suggested the idea of a ‘Universal’ wage for poorer income groups, regardless of whether they are in work or not.
Whether a small base ‘salary’, payable to say every student, would be enough to get Britain going again is debatable. However, it shows how far we have come from the mid 90’s when the free market economy was seen as the only game in town. At this stage, unless Britain takes a sharp move towards socialism – not wholly impossible under ‘shadow PM’ Corbyn – this idea seems unlikely to be adopted, as accusations of pasting ‘money for nothing’ into student bank accounts would no doubt enrage the middle class.
Meanwhile in America, wages have lagged productivity growth for the last decade and voters are not best pleased. This wage erosion, especially in real terms, does of course hurt family balance sheets and reduces most consumer’s desire to keep spending money on life’s little treats. It is therefore understandable, why US politicians are trying hard to boost wage through stimulus packages
For example, a reduction in US Corporate tax would of course flow straight through to shareholders and deliver a higher profit per share figure. This in turn could cause a sudden drop in the PE rating and make American stocks and consumer confidence ‘great again’ – as Trump would say.
Your Wealth at a Glance.