POURING GASOLINE ON THE FIRE

There seems to be optimism that the tax plan considered by the Senate will be approved.  I don't know about you, but I am one of those that will come out thousands of dollars behind in the Senate version.  Perhaps my problem (healthcare deduction) will be removed in Conference Committee.  I can hope, can't I?

Well on this news, the stock market is going crazy today (so far).  The attempt in this tax plan is to give corporations even more money when they are rolling in money as it is.  They have been told that about a third of the corporations will actually improve their plants and hire workers (and give raises?).  Most corporations have said that they will mainly buy back stock, do some mergers and acquisitions (M&A), boost dividends, and maybe reduce debt.

Major companies including Cisco Systems Inc., Pfizer Inc. and Coca-Cola Co. say they’ll turn over most gains from proposed corporate tax cuts to their shareholders, *
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Robert Bradway, chief executive of Amgen Inc., said in an Oct. 25 earnings call that the company has been “actively returning capital in the form of growing dividend and buyback and I’d expect us to continue that.” Executives including Coca-Cola CEO James Quincey, Pfizer Chief Financial Officer Frank D’Amelio and Cisco CFO Kelly Kramer have recently made similar statements.

“We’ll be able to get much more aggressive on the share buyback” after a tax cut, Kramer said in a Nov. 16 interview.

Yet congress proceeds as if they feel what these companies are telling them is false and that companies actually will increase plant and employees and maybe increase wages.

Meanwhile, the stock market rises like a roaring fire (also called a bubble).  I have started to put floors on some of my stocks like 3M that are up 50% this year.  Remember the saying, "Buy on the rumor and sell on the news."  When the bill is actually passed, watch out.

Incidentally, a lot of bills die in Conference Committee, though I doubt this one will.  It may look quite a bit different from what either the House or the Senate approved, however.

Repatriated Overseas Profits A part of the bill regards a tax holiday for repatriated profits from overseas.  when this was done before in 2004, over 90 of the money went to stock buybacks.**   Repatriation of profits might even slow the economy"
Kleinbard  [Edward Kleinbard, professor at the University of Southern California's Gould School of Law.] notes that the Republican bill leaves one thing conspicuously unchanged: "A U.S. multinational looking to build a factory to serve foreign customers and choosing between a U.S. and low-taxed foreign location will still have a big incentive to locate that business abroad."***
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 [Clausing at Reed College suggests that] Unemployment is at a 16-year low of 4.2 percent. Economic growth has come in at a healthy annual rate of 3 percent or better in each of the past two quarters. If the tax bill managed to heat the economy much more, the Federal Reserve might have to accelerate its pace of interest rate increases to cool things off.

That would make loans costlier for individuals and businesses and might slow the economy.***

* https://www.bloomberg.com/news/articles/2017-11-29/trump-s-tax-promises-undercut-by-ceo-plans-to-reward-investors
** http://stopcontinentaldrift.blogspot.com/2017/09/tax-holiday-for-repatriation-of.html
http://stopcontinentaldrift.blogspot.com/2017/11/corporate-taxes-cuts-unintended.html
*** https://www.cbsnews.com/news/gop-tax-plan-repatriate-offshore-profits-may-not-work/